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Insights Category: Tax Optimisation

Landlords: Mitigating Inheritance Tax When Passing On Property And Personal Assets

Introduction

Inheritance Tax (IHT) can be tricky to understand, but its impact can mean less money ends up in the pockets of your loved ones.

Landlords face additional considerations and potential barriers when it comes to Inheritance Tax (IHT) planning. Whether you opt to retain, sell, or gift a property, tax liabilities can arise for buy-to-let landlords. Amidst various choices, it’s easy to overlook other methods to diminish the size of your overall estate as well.

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.

At a glance

  • You can reduce Inheritance Tax (IHT) or Capital Gains Tax (CGT) liabilities on your properties with careful planning and expert advice.
  • Starting your estate planning in your 60s and 70s can make a real difference to your IHT or CGT tax bills, and mean you leave more to your loved ones.
  • Bespoke trust solutions may help you reduce your estate for IHT purposes while retaining some form of access to your investments.

Trusts are not regulated by the Financial Conduct Authority.

Simplifying a daunting process

What will be counted as part of my estate?

Upon your death, all your possessions, including savings, assets like property, ISAs, and shares, constitute your estate. Inheritance Tax is typically charged at 40% on assets outside of the Nil-Rate band of £325,000 per individual. When passing on your primary residence to your direct descendants, you may also benefit from the Residence Nil-Rate Band amounting to a further £175,000.

It’s evident how a property investor accumulating holdings over several years could surpass £2 million or more. Once your estate exceeds £2 million, some tax allowances are reduced or become unavailable for Inheritance Tax (IHT) purposes.

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.

How much does my estate need to be worth to be liable for IHT?

The first step in reducing your Inheritance Tax (IHT) liability is understanding how it operates. Everyone is entitled to a Nil Rate Band (NRB) threshold of £325,000. This threshold allows you to leave assets to ‘non-exempt’ beneficiaries, such as children, grandchildren, or other family members, without triggering IHT. However, if you leave more than this amount to non-exempt beneficiaries, IHT becomes payable on the excess.

If you pass away leaving your entire estate to a UK domiciled spouse or civil partner, it allows them to use any unused percentage of your NRB threshold upon their death. Consequently, they can leave assets up to 100% of the value of two unused NRB thresholds (currently £650,000) to non-exempt beneficiaries without incurring IHT.

Furthermore, if you leave your home to children or grandchildren, you may be eligible for an additional tax-free threshold called the Residence Nil Rate Band (RNRB), currently set at £175,000 for individuals. This threshold doubles to £350,000 upon the second death for married couples or civil partners who haven’t used any percentage of the RNRB on the first death.

Moreover, if you donate 10% or more of the net value of your estate to charity upon death, the rate of IHT applied to gifts exceeding the NRB to non-exempt beneficiaries is reduced from 40% to 36%.

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 will happen if I decide to keep a buy-to-let property, and pass it on?

If you pass away owning property, your beneficiaries will inherit the property without any historical capital gain, but it will still be considered part of your estate for Inheritance Tax (IHT) purposes. IHT is levied at a rate of 40%, so if you die with a property valued at £400,000, and the nil rate band has already been utilised, your beneficiaries may need to pay £160,000 to HMRC.

However, IHT becomes a more significant concern if the estate exceeds the nil rate band. In such cases, if you only own one or two buy-to-let properties along with few other assets, retaining the property may be advantageous.

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

What will happen if I decide to sell any of my buy-to-let properties?

If you sell a property that you’ve never lived in, it becomes subject to Capital Gains Tax (CGT) if its current value exceeds the purchase price. CGT is imposed on the gain or profit you’ve realised. For residential property, CGT rates are 18% for basic rate taxpayers and 24% for higher rate taxpayers. The rate of CGT payable will depend on your other income.

However, there are avenues to potentially reduce your CGT liability. If the property was your main residence at one point, you may qualify for Main Residence Relief, which can lessen the amount of tax owed. Additionally, any expenditure on renovations can be deducted from the sale price to calculate your net gain. Selling a property offers the opportunity to reinvest the proceeds, potentially leading to further growth in a more tax-efficient environment, including one with reduced Inheritance Tax (IHT) implications.

It’s crucial to note that if you sell or gift a property just before your death, both CGT and IHT may apply, affecting you and your family financially.

While investing sale profits into an ISA can offer tax benefits concerning income and capital gains tax, they are still considered part of your estate for IHT purposes upon your death. Pension funds, however, are generally excluded from your estate.

Ultimately, the outcome will hinge on your individual circumstances, such as age, health, and other factors. These decisions are among the most significant financial choices you’ll make in your lifetime, underscoring the importance of consulting a financial adviser to explore your options thoroughly.

The value of an investment with SJP 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 dependent on individual circumstances.

Can I make gifts to mitigate IHT?

You have several options to gift money without it being included in the final calculation of your estate for Inheritance Tax (IHT) purposes.

Firstly, you can give away up to £3,000 each tax year, known as your ‘annual exemption’, in addition to the ‘small gifts exemption’ for making any number of small gifts up to £250 per person, to any number of individuals as long as you have not used another allowance on the same person. These gifts are exempt from IHT.

Furthermore, the £3,000 annual exemption can be carried forward for one tax year, allowing you to give away £6,000 in a single tax year if you made no gifts in the previous year.

Gifts exceeding the £3,000 allowance are still exempt from IHT as long as you survive for seven years after making the gift. However, gifts made within the seven years preceding your death will be added back into your estate, potentially using up some or all of your nil rate band. If the gift surpasses the nil rate band, some tax may be due. Nonetheless, if you survive the gift by at least three years, the amount of tax payable decreases on a sliding scale, meaning the longer you live, the less tax is owed. This approach not only supports your family during your lifetime but also reduces your IHT liability afterward.

Additionally, if one of your children or grandchildren is getting married, each parent or grandparent can gift up to £5,000 to the child or £2,500 to the grandchild. This gesture can provide a new marriage or civil partnership with a financial boost, aligning with your intentions.

Finally, gifts made regularly from surplus income are also exempt from tax, provided you can demonstrate that they do not impact your usual standard of living.

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.

Can I gift my properties during my lifetime?

Many landlords consider gifting property during their lifetime as a strategy to reduce the size of their estate for Inheritance Tax (IHT) purposes.

If you don’t rely on the rental income from the property, an outright gift might be an option. This is known as a Potentially Exempt Transfer (PET). If you survive for seven years after making the gift, there will be no IHT to pay. However, once the property is gifted, you lose control and flexibility with no possibility of reversing the decision.

Gifting a property constitutes disposing of an asset, potentially triggering Capital Gains Tax (CGT) if the property has appreciated in value.

Alternatively, you could gift the property into a Discretionary Trust, offering more control. By transferring the property to such a trust, the transfer is a chargeable transfer for IHT, but you might qualify for a relief allowing you to defer CGT payment until the trustees sell the property. If you survive for seven years after making the gift, the property will not be considered part of your estate, resulting in no 40% IHT liability, similar to a Potentially Exempt Transfer.

Considering this option requires guidance from a financial adviser.

It’s important to note that when gifting any asset, you must survive for seven years. Failure to do so means the gift reverts to your estate, potentially leading to double taxation – CGT when making the gift and IHT upon death.

My properties are part of my retirement income – what happens if I give them away?

If you’re deriving income from your rental properties, or intend to do so in retirement, the situation becomes more intricate. If you gift the entire property – whether to your children or into a trust – while continuing to receive an income, it’s considered a Gift with Reservation. In this case, the property remains part of your estate despite the transfer.

However, there may be an option to gift only a portion of the property into a specialised trust, retaining the right to receive income without violating the gift with reservation rules. Seeking advice from a solicitor to determine whether a trust is suitable for your circumstances will ensure your financial plans align with your long-term goals.

There’s a limit of £325,000 that can be gifted into a lifetime trust within any consecutive seven-year period. Exceeding this threshold incurs a 20% IHT on the surplus. Additionally, if the property being gifted to the trust has appreciated in value since acquisition, you may also be subject to CGT.

Gifting and trusts can be highly advantageous and tax-efficient strategies for legacy planning. Trusts, in particular, offer versatility, but it’s essential to seek expert guidance and discuss your options with a financial adviser or solicitor before establishing a trust.

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.

The value of financial advice and IHT planning

Inheritance Tax (IHT) is a highly intricate area, and very few individuals are familiar with every rule, exemption, and allowance, or how to leverage them effectively.

Given that your assets may fluctuate in value over time, regular reviews of your financial situation are crucial as they will impact your IHT liability. Additionally, it’s advisable to consult with a financial adviser whenever you engage in property transactions or contemplate doing so. They can offer guidance to ensure that your choices are tax-efficient for both you and your beneficiaries.

Taking proactive steps in Inheritance Tax planning while you’re in good health enables you to create a more secure financial future for those you care about.

SJP Approved 21/05/2025

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

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Using a Life Cover Insurance Plan Written in Trust to Meet an Inheritance Tax (IHT) Liability

Introduction

Inheritance Tax (IHT) can be tricky to understand, but its impact can mean less money ends up in the pockets of your loved ones. This is even more so the case as pensions will form part of your estate from 2027. A solution could be to write a Life Cover Insurance Plan into Trust.

Tax allowances such as the residence nil-rate band (RNRB) begin to fall away for estates valued in excess of £2 million. In the case of the RNRB, this is tapered by £1 for every £2 an estate exceeds £2 million.

What is a Life Cover Insurance Plan?

Life insurance offers a tax-exempt payout to a chosen beneficiary upon your death.

This insurance comes in two forms; term assurance and whole of life assurance.

Term assurance covers you for a set duration. It is often chosen to safeguard against debts that will diminish or conclude over time, like a mortgage repayment, or to ensure there is a fund available for specific future expenses, such as your children’s education costs.

Whole of life assurance, on the other hand, guarantees a payout at the time of death, as long as the premiums have been consistently paid throughout the policy’s term.

Whole of life policies are generally aimed at addressing financial responsibilities that will arise at your death, regardless of its timing, like covering an inheritance tax bill or enhancing the inheritance you leave behind. These plans are suitable when the need for coverage is indefinite or unclear.

How can a Life Cover Insurance Plan help pay towards an Inheritance Tax (IHT) bill?

Over and above gifting sufficient assets to reduce your gross estate value to within £2 million, if you have excess income during your retirement, it might make sense to consider a Life Cover Insurance Plan written in trust, to meet the eventual IHT liability, which could be as high as £400,000 on an estate valued at £2 million.

It is important that the Life Cover Insurance Plan is written into Trust, and that the premiums are paid using excess income, rather than from assets – otherwise, the premiums paid could be treated as a chargeable lifetime transfer (CLT).

Note that probate is required to release estate assets, and IHT needs to be paid before probate is granted. Therefore, an estate’s assets cannot be directly used to meet IHT liability, and an alternative solution such as life cover in trust provides the funds required.

How much might a Life Cover Insurance Plan cost?

As of May 2025, a guaranteed whole of life joint plan with a sum assured of £400,000 would cost £6,366 per annum, assuming a 65-year-old male non-smoker and 65-year-old female non-smoker insured through Vitality, and not including ‘waiver of premium’ as an additional option. These figures are based on guaranteed premiums, meaning the provider cannot change the premium as you get older.

Guaranteed whole of life cover provides certainty; if the premiums are paid until death, then the sum assured will pay out. To put the figures in perspective, a 65 year old woman has a life expectancy of 24 years. By the time she is 89, she would have paid around £153,000 in premiums, but the payout from the plan would be £400,000 on second death. If the woman lives to 100, she will have paid £223,000 in premiums, and the payout from the plan would still be £400,000 on second death.

The value of financial advice and Inheritance Tax (IHT) planning

IHT is a highly complex area and very few people know every rule, exemption and allowance, or how to use them.

As your assets increase or decrease in value, your IHT liability will change and regular reviews of your financial position will therefore be important. It’s always a good idea to get in touch with a financial adviser whenever you buy or sell property too, or if you’re thinking of doing so. They can help make sure the choices you make will be tax-efficient for you – and those you leave behind.

Making confident decisions about Inheritance Tax planning while you’re still fit and healthy helps to create a better world for everyone you care about.

Appointing an expert wealth manager may enable you to capitalise on tax efficiencies such as these, mitigating paying unnecessary tax in your retirement and in the event of your death.

The levels and bases of taxation and reliefs from taxation can change at any time.

Tax relief is generally dependent on individual circumstances.

SJP Approved 21/05/2025

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

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Taking Retirement Income: Tax in Retirement and Drawing Down

Introduction

There’s much greater flexibility when it comes to retirement income these days, but there are also a few traps waiting for the unwary.

It used to be that when you reached retirement, your journey as a pension investor effectively ended. That’s no longer the case, thanks to the 2015 reforms to Defined Contribution (DC) pensions, which have resulted in many people remaining invested during retirement. The process is now much more seamless, and in some cases very little really changes.

But some things do change, and it’s important to be aware of them. Perhaps the most obvious is the way in which you’re taxed once you begin to take an income in retirement. While there are more opportunities for tax-efficiency these days, there are also a few more pitfalls that need to be avoided.

What you need to know

A new tax regime

During your working life you generally didn’t have to think too much about which income would be taxed, because it would usually be your earnings. And you may well be aware that while you can still be charged Income Tax in retirement, you don’t pay National Insurance on investment income or on any earnings after hitting State Pension age.

But the tax situation is suddenly quite different in other ways too. From a tax perspective, you can now control much more about how you take your income and how much tax you pay. You could well have pensions, Cash ISAs, Stocks & Shares ISAs, property, earnings and so on. But how you extract money from that, and use it as income, is treated and taxed differently.

The best course of action won’t always be obvious. For many of those who are deciding where to take an income from once they’ve retired, the starting point will be their pension – but while the first quarter of your DC pension pot can be taken tax-free, people often forget that anything above that 25% will be taxed at your marginal rate. In other words, the way the pension is taxed makes it worth exploring other options.

For example, income from your ISA won’t be taxed, giving you flexibility to take your income from one place and not another, or to have a mix. A lot of people don’t necessarily realise this and they would rely heavily on a pension income that’s taxed, perhaps because they’re not aware of other ways of doing it. This is where an adviser can step in and help you, simply by knowing which levers to pull.

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.

Steering clear of the traps

There’s one failsafe way to ensure you don’t end up paying more tax in retirement than you need to – get pension advice from someone who knows the costly mistakes to avoid.

When you’re approaching retirement, you should speak to an adviser to ensure you’re taking income in the most tax-efficient way, because it is quite different from how you’re taxed when you’re working. This applies to anyone leading up to and entering retirement. And it can be especially pertinent for those reaching retirement with both DC and Defined Benefit (DB, or final salary) pension pots.

That’s because the income from a DB pension will be paid to you whether you want it or not, and it will be taxed. So, it’s important to know which incomes you’re going to get anyway and which incomes you have more flexibility with.

An adviser can help you see the bigger picture and understand which of your assets are subject to which tax regime when you take money out. It’s a time of life when a lot of people want to take lump sums, and there are important decisions to make, so you don’t want to take your eye off the ball at the last minute.

Planning for your retirement can be overwhelming, but Apollo can help you begin the journey of budgeting for your later years. If you’re thinking of starting a pension or would like to review your existing pension plans, it’s a good idea to get advice.

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. Tax relief is generally dependent on individual circumstances.

You can also access free impartial pensions guidance from the Pension Wise website, or you can book an appointment over the telephone: 0800 011 397.

SJP Approved 21/05/2025

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

Contact Us

Giving Your Children and Grandchildren a Head Start

Introduction

While money isn’t the be all and end all, it undeniably offers children a significant advantage. A nest egg can contribute towards their education, grant access to diverse opportunities, and give them a head start in their adult lives.

Saving now provides them with greater flexibility to pursue their desired paths when the time comes. It’s another avenue through which you can afford them the best possible start in life.

The cost of growing up

Raising children can be financially challenging. While families may cover many of the costs of raising young children through their income, having a financial reserve as adulthood nears can be invaluable.

As young adults approach major milestones such as purchasing their first car, attending university, or buying their initial home, significant expenses arise.

By providing support, you can assist them in pursuing their aspirations. Starting to save early ensures they’ll have greater opportunities as they grow older.

01

£48,470

The average debt of a student leaving an English university in 2024
Source: Statista, December 2024
02

£151,731

The average deposit for a first-time buyer in Greater London
Source: UK Finance Key Mortgage Market Data, February 2025
01

£48,470

The average debt of a student leaving an English university in 2024
Source: Statista, December 2024

02

£151,731

The average deposit for a first-time buyer in Greater London
Source: UK Finance Key Mortgage Market Data, February 2025

Start early

You don’t have to allocate a substantial sum each month to establish a solid nest egg for a child. The crucial step is to commence saving as early as possible.

Beginning to save when children are young offers the advantage of time. It’s remarkable how even modest amounts saved consistently can accumulate over time. The power of compounding, combined with prudent investment decisions, has the potential to substantially enhance the value of your fund as children mature.

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.

Savings that work for everyone

You might choose to save a modest sum monthly, or invest lump sums as it fits your circumstances.

Your choice may be grant the funds to your child/ grandchild at age 18, or you might prefer to maintain control for a longer period of time.

Regardless of your preferences, selecting an investment solution that provides a suitable balance of flexibility, tax efficiency, and accessibility is crucial.

Invest in a Junior ISA

Junior ISAs represent an opportunity for saving towards a child’s future. The funds are inaccessible until the child reaches their 18th birthday.

These accounts can be set up by a parent or legal guardian, however further contributions can be accepted from anyone once the account has been set up. Regular deposits or one-time payments up to the annual limit (currently £9,000) are permitted, with all income and gains being exempt from Income Tax and Capital Gains Tax.

Upon reaching the age of 18, the Junior ISA automatically turns into an adult ISA which offers further flexibility to invest or withdraw funds as desired.

Junior ISAs offer the choice between cash or stocks and shares options. While cash is perceived as lower risk, considering the potentially lengthy investment term of up to 18 years, stocks and shares Junior ISAs typically offer superior returns over time. Although it is possible to spread the risk by subscribing to both a cash Junior ISA and a stocks and shares Junior ISA – provided the annual limit is not exceeded.

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.

An investment in a Stocks and Shares ISA does not provide the 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 St. James’s Place does not offer Cash ISAs.

Set up a trust

Another frequently overlooked option is establishing a bare trust or designated investment account for a grandchild. Typically, the funds are invested in a portfolio of unit trusts, offering the benefits of professional management, risk reduction through diversification, and tax efficiency.

This straightforward legal arrangement of setting up a bare trust is an excellent solution for grandparents seeking to invest money for a grandchild. Until the beneficiary turns 18 and assumes ownership of the investment, the grandparents retain control over the funds. Subsequently, the grandchild can independently make decisions about the plan.

Unlike a Junior ISA, there are no limits to how much you can invest in a bare trust. The assets are held by a trustee, usually the parent or grandparent, for the child’s benefit until they reach 18 (or 16 in Scotland).

As long as the investment is made by someone other than the parents, the assets are taxed as if they belong to the child, which usually means there is little or no tax to pay on any income or gains.

This information applies for bare trusts in England. Bare trusts work differently in other regions.

Payments into bare trusts are considered to be gifts for inheritance tax purposes.

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.

Trusts are not regulated by the Financial Conduct Authority.

Start a pension

While initiating a pension for a child might initially appear unusual, for certain families, it can be a highly astute decision.

These pensions can be established by a parent or legal guardian, with contributions welcomed from anyone once they’re set up.

The blend of tax efficiency and an investment horizon potentially spanning over 60 years presents an exceptional opportunity for wealth growth. Even a single lump sum payment into a child’s pension could significantly enhance their retirement savings and alleviate some financial burdens in adulthood.

Moreover, if concerns arise regarding how a child might utilise the saved funds, there’s the added advantage that the money will remain beyond temptation’s reach until they reach retirement age.

You can put a maximum of £2,880 into a pension for a child each year. Tax relief will boost it to £3,600.

Investing the maximum £3,600 each year into a pension fund from birth until a child turns 18 could create a pot worth £1,030,000 by age 65.*

*Assumes an annual growth rate of 5% net of charges.

These figures are examples only and are not guaranteed. What you get back will depend on your investment performance and the tax treatment of your savings. You could get back more or less than this.

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 21/05/2025

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

Contact Us

Pensions: Explaining The Tapered Annual Allowance

Introduction

For those earning a high income, it’s essential to understand the implications of the Tapered Annual Allowance on making pension contributions. This guide offers an overview of the tapered annual allowance and its operational mechanism.

Understanding when the Annual Allowance is Tapered

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.

Mechanics of the Tapered Annual Allowance

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.

Tapered Annual Allowance and Carry Forward

The tapered annual allowance does not prohibit the use of carry forward rules, which permit the transfer of unused annual allowance from the previous three tax years. The tapered allowance for each year determines the amount that can be carried forward.

Employer Contributions and Exceeding the Tapered Annual Allowance

The tapered annual allowance applies to all pension contributions, including those made by employers. Exceeding your annual pension allowance incurs an annual allowance charge at your highest marginal income tax rate.

Calculating Your Tapered Annual Allowance

Determining your adjusted and threshold income can be complex. Additional information on calculating your tapered annual allowance is available on the Government’s website, and consulting an expert Adviser or tax specialist is advisable for tailored planning.

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 21/05/2025

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

Contact Us

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.

Let’s get started

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.

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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.

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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.

Book A Conversation

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) 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 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?

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 contributions up to £60,000 or 100% of relevant earnings each year.
  • 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.
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%.

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 2024/25 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.

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.

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-free 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.

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 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.

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An illustrative example – Matt, earning £170,000

Matt is a 36 year old working at a consulting firm in London, with an annual salary of £170,000. He previously decided to make £20,000 in annual pension contributions through salary sacrifice, to bring his taxable income down to £150,000.

Matt’s employer provides 5% contributions, equating to £8,500 annually. The current value of his pensions is £110,000. He realises that, with an assumed net annual growth of 5%, the value of his pension could reach £1 million after just 17 years, with his current trajectory.

Accordingly, Matt takes the decision to bring his pension contributions down to 5%. Together with his employer’s contributions, he can now expect his pension to be worth about £1,058,000 after 24 years, when he retires at the age of 60.

Matt’s taxable income has now increased from £150,000 to £162,500 a year, because he has sacrificed less to pension contributions. He therefore takes home an extra £552 each month after income tax, which he saves into a stocks & shares ISA. After 24 years, assuming the same net annual growth of 5%, his ISA is worth about £306,000, from which he can draw flexibly and entirely tax-free.

When Matt is 60 years old, he stops working, and requires around £50,000 a year to fund his retirement. 25% of his pension withdrawals are tax-free, owing to the Lump Sum Allowance – this equates to £10,000 of his total annual pension withdrawals of £40,000. A further £12,570 of his pension withdrawals each year is earned tax-free because of his personal allowance. This means that just £17,430 of his annual pension withdrawals is subject to income tax, at 20%. Finally, he takes £13,486 each year from his ISA, tax-free. He pays just £3,486 income tax each year, taking home £50,000 – equivalent to an income tax rate of only 6.5%.

Had Matt instead continued to pay only into his pension, rather than utilising his ISA allowance alongside, then he would have a pension worth around £1,640,000 by the time he retired at 60. Because of the additional tax relief Matt would have enjoyed by sacrificing his salary, he would have about £276,000 more in retirement savings – or 20% more. He could elect to spend 20% more – around £60,000. However, his tax-free withdrawals would be limited by the Lump Sum Allowance, which equates to just 16% of this total pension pot; he could therefore have taken £10,700 tax-free, plus £12,570 more without income tax because of his personal allowance; meaning his taxable income would have been £42,230; on which he would have paid £9,352 in income tax. Matt would have taken home £56,148 each year, with an income tax rate of 14%.

On paper, Matt would have been better off by £6,148 each year, if he had continued to make higher pension contributions rather than saving some of his income into his ISA; despite the diminishing effect of tax-free pension withdrawals, capped by the Lump Sum Allowance. However, this ignores the flexibility that Matt has enjoyed for 24 years, in being able to access the value of his ISA at any time, tax-free. He is also content that he has mitigated a significant amount of income tax that he would have been liable for throughout his retirement.

An illustrative example – Nicola, with £700,000 already saved

Nicola is a 48 year old working at an investment bank in London. She has been diligent in making significant pension contributions throughout her career, and has already amassed pension savings of £700,000. Nicola earns a £210,000 salary, of which she contributes £40,000 into her pension; meanwhile her employer provides 5% contributions, equating to £10,500 annually. She realises that, with an assumed net annual growth of 5%, the value of her pension could reach £1 million after just four more years, with her current trajectory.

Nicola wants to retire at 57, and accordingly, she takes the decision to bring her pension contributions down to 5%. Together with her employer’s contributions, she can now expect her pension to be worth about £1,335,000 after 9 years, when she retires at the age of 57.

Nicola’s taxable income has now increased from £170,000 to £199,500 a year, because she has sacrificed less to pension contributions. She therefore takes home an extra £1,302 each month after income tax, which she saves into a stocks & shares ISA. After 9 years, assuming the same net annual growth of 5%, her ISA is worth about £177,000, from which she can draw flexibly and entirely tax-free.

When Nicola is 57 years old, she stops working, and requires around £55,000 a year to fund her retirement. 20% of her pension withdrawals are tax-free, owing to the Lump Sum Allowance of £268,275 – this equates to £10,000 of her total annual pension withdrawals of £50,000. A further £12,570 of her pension withdrawals each year is earned tax-free because of her personal allowance. This means that just £22,430 of her annual pension withdrawals is subject to income tax, at 20%. Finally, she takes £9,486 each year from her ISA, tax-free. She pays just £4,486 income tax each year, taking home £55,000 – equivalent to an income tax rate of only 8%.

Had Nicola instead continued to pay only into her pension, rather than utilising her ISA allowance alongside, then she would have a pension worth around £1,700,000 by the time she retired at 57. Because of the additional tax relief Nicola would have enjoyed by sacrificing her salary, she would have about £188,000 more in retirement savings – or 12% more. She could elect to take 12% more – around £61,600. However, her tax-free withdrawals would be limited further by the Lump Sum Allowance, which now equates to under 16% of this total pension pot; she could therefore have taken £9,856 tax-free, plus £12,570 more without income tax because of her personal allowance; meaning her taxable income would have been £39,174; on which he would have paid £7,835 in income tax. Nicola would have taken home £53,765 each year, with an income tax rate of 15%.

Nicola is better off by £1,235 a year, due to the diminishing effect of tax-free pension withdrawals, capped by the Lump Sum Allowance. She has also benefitted from the flexibility in being able to access the value of her ISA at any time, tax-free.

Next steps

For many, pensions will still be a core part of retirement planning due to the up-front tax relief. However, the IHT changes in 2027 mean it is crucial to diversify 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.

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

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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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