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Taxes set to rise for baby boomers?

Archive for March, 2018

Taxes set to rise for baby boomers?

Wednesday, March 14th, 2018

Recent research has suggested that those in the baby-boomer generation should be prepared to pay higher wealth taxes in order to pay for healthcare costs likely to climb steeply in the near future. According to think tank the Resolution Foundation, this could signal the end of the tax cuts in Britain, a development which may have less impact on those of you at or approaching retirement, but significant impact on your children’s generation.

According to the research, by 2030, health, education and social security spending are predicted to rise by £20 billion a year in today’s money, climbing to £60 billion a year by 2040. Thanks to spending cuts for a number of departments, the UK government’s budget deficit has gradually been brought down since it stood at 10% of economic output in 2010.

However, as the number of easy cuts able to be made runs out, the government is coming under increasing pressure to raise funds through increased taxation. Whilst the chancellor, Philip Hammond, has managed to cut the country’s financial deficit faster than had been forecast over the past financial year, the Resolution Foundation’s report suggests that increased public spending in the coming years will give the government no other option but to raise taxes.

“The time has come when we boomers are going to have to reach into our own pockets,” said the chair of the Resolution Foundation and former Conservative government minister, David Willetts, in response to the report. “The alternative could be an extra 15 pence on the basic rate of tax, paid largely by our kids.”

Aside from the rising cost of healthcare, the think tank also highlighted another key reason why baby-boomers will need to take on more of the tax burden in the future: later generations will simply not be able to afford to do so. Millennials, born between 1981 and 2000, are spending more of their income on housing costs than any other generation of the twentieth century.

Despite this, the level of home ownership has decreased significantly in the UK over the past two decades as young adults have felt the effects of increased pension payments and poor wage growth following the financial crisis. This has further and further skewed wealth towards the older generations.

Willetts feels that there may now be no other choice than to increase wealth taxation. “Unless we act, at some point we will face a choice between changing our approach to taxation, or cutting access to the NHS and letting social care get into an even deeper crisis,” he warns. “We can’t delay that debate any longer.”

Talk about your Will – don’t be one of the 93%

Thursday, March 8th, 2018

A national saving and investment survey has shown only 7% of people have spoken to their parents about inheritance. One of the most important parts of planning to leave an inheritance is to talk about it. This is obviously not an easy topic and it may be a good idea to set aside some specific family time to have this discussion. This could help avoid any family disputes before and after you are gone.

The most efficient way to prepare for this discussion is planning. Take some time to think about your priorities for your money after you are gone. This could include things like making sure your partner or spouse is provided for, donating to a charity that is important to you, caring for a relative that is ill or has a disability, or making sure your grandchildren have the best possible opportunity of a good education. It may help to write down these priorities so that you have a basic draft of the will you want to leave. This will help a discussion with your family go more smoothly than if you don’t have a clear idea of what you are looking to achieve.

Remember that your inheritance wishes are solely your decision and no one else can tell you what to put in your will. During the meeting with your family, try to outline what you want to achieve and your reasons, rather than the exact sums involved. This will help your family understand your specific goals and could reduce any potential disagreement. They may also have some relevant input into the management of your estate and it is worth taking on board their expectations and opinions with regard to your assets and possessions.

You can also reassure them that nothing is set in stone as many things could happen between this discussion and the end of your life, and you can amend your will to reflect this. This conversation can give you the foundation to adequately prepare your will knowing you have taken your loved ones’ wishes and expectations on board.

As part of your inheritance planning, ensure you talk to your financial advisor about Inheritance Tax Mitigation. Mitigation ensures you have done everything you can legally to pay the minimum amount of tax. There are a number of ways of reducing tax on your inheritance which include making a gift to your partner or giving money to your family and friends. There are also options like trusts or leaving money to charity which can reduce your overall inheritance tax bill.

But still the most important aspect of this difficult subject is to a have an honest, open dialogue with the people that are important to you to help prepare them as best you can for the future after you are gone.

The ISA deadline approaches

Thursday, March 8th, 2018

It may seem as though the year has barely begun, yet the month of March is already upon us. That means that spring is just around the corner. It also means that the ISA deadline of 6th April is rapidly approaching.

Individual Savings Accounts (ISAs) are tax-free savings accounts open to anyone over the age of 16 to deposit their savings each year. With attractive savings allowances, ISAs have become very popular with people across the UK intent on building a nest egg for their future.

As of the end of the 2017/2018 tax year, the maximum amount you can deposit in an ISA in one financial year is £20,000 per annum, up from £15,240 in the previous tax year.

This limit will remain unchanged into the 2018/2019 tax year. However, as those in the know will tell you, any tax savings are dependent on the amount you deposit into your ISA over the course of the tax year. Deposits cannot roll over from one tax year’s allowance to the next, meaning that you can’t ‘top up’ your savings in 2018/2019 using any unused portion of this tax year’s allowance. When it’s gone, it’s gone!

Maximising your ISA allowance is therefore a great way to save for your future. This is further highlighted by the fact that ISA allowances can be split across different financial products, including cash ISAs, stocks and shares ISAs, innovative finance ISAs and lifetime ISAs (LISAS).

Lifetime ISAs, for example, were first launched in April 2017 to help first-time buyers under the age of 40 buy their first home and/or savers to build a nest egg to use in retirement once they reach the age of 60. Borne of research into economic and behavioural psychology, the Lifetime ISA tackles two problems simultaneously: that many people between the age of 18 and 40 are not saving for a home and nor are they contributing a significant portion of their earnings to a pension.

Making use of an ISA allowance is typically one of the features of sound financial planning. ISAs, though, are just one of many ‘tax-wrappers’ available – meaning investors can ‘wrap’ their investment, sheltering them from paying tax on all, or a portion, of their assets. Your adviser will likely talk to you often about the wrappers you are using, how to maximise them and which are the most appropriate for your current circumstances. If you have any questions around this topic, please feel free to get in touch with us directly.