Insights Category: Tax Optimisation

• 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.

• 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.

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.

• 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.

• 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.

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.

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.

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.

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.

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

• 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.

Share key allowances between spouses;

• Personal Allowance
• CGT Annual Exemptions
• Dividend allowances

…to avoid higher tax bands as individuals.

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.

• 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.

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.

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.

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.

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.

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).

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.

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.

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.

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.

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.

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.

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.

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).

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.

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).

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.

• 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.

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.

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.

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 CLTs – PETs (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‑dodging – GWR/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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.