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Minimising or even Avoiding Capital Gains Tax Liabilities

Getting advice early and planning ahead before you sell an asset.

Capital Gains Tax (CGT) is a form of taxation imposed on profits earned from the sale of certain types of assets. Gains are calculated by subtracting the purchase price and related expenses (such as sales charges) from the selling price. They are generally taxed at a rate higher than income taxes in order to discourage speculation.

If you plan to sell assets that have appreciated in value, such as real estate, stocks or bonds, it is important to be aware of CGT and how it can affect your bottom line. Proper planning can help you minimise or even avoid CGT liabilities. For years, the annual CGT exemption has been a useful way of reducing your liability for CGT on any profits you may make from investments or disposals of assets. But with news in last year’s Autumn Statement that this exemption will be cut to £6,000 in 2023/24 and £3,000 in 2024/25, now is the time to take action if you want to protect your tax-free allowance.

Here are some ways to potentially reduce your CGT liability:

Use your CGT exemption

Have you made full use of the current 2022/23 CGT exemption, taking into account the upcoming reduction of this exemption commencing from the next tax year? The Chancellor, Jeremy Hunt, in his Autumn Statement last November announced that the CGT personal allowance will be more than halved to £6,000 in April 2023, and halved again to £3,000 in April 2024.

It is important to consider making any capital gains before the end of this current 2022/23 tax year, in order to maximise your current £12,300 CGT exemption. This approach will ensure that you are able to take advantage of all available resources and protect yourself from incurring a large liability down the line.


Make use of losses

When reporting capital gains to HM Revenue & Customs (HMRC), you may be able to reduce your tax liability by making use of losses. Losses and gains realised within the same tax year must be offset against each other, which in turn can help lower the overall gain that is taxable. Furthermore, any unused losses from earlier years can be carried forward for use, provided they are reported to HMRC within four years from the end of the corresponding tax year in which the asset was sold. It’s important to keep accurate records of all losses and gains so as professional advice can be sought when necessary. This can help ensure that you make the most out of available reliefs and minimise your CGT liability accordingly. Transfer assets to your spouse or registered civil partner

Couples and registered civil partners can take advantage of their combined annual CGT exemption by transferring assets between them. This is a tax-exempt transfer as long as it is a genuine, outright gift. By taking advantage of this exemption, couples and registered civil partners can benefit from increased capital gains opportunities that wouldn’t otherwise be available on an individual basis. The assets can be any type of property or investments that are liable to CGT, such as stocks and shares, land, buildings, business assets or personal possessions.

It’s important to note that the transferred asset will become part of the receiving partner’s estate for Inheritance Tax purposes in the event of their death. This could potentially result in a larger Inheritance Tax bill, so professional advice should be sought before making any transfers. In addition, if the transfer takes place when the asset has appreciated in value, it’s important to consider whether it would benefit you more to pay CGT on the gain before transferring the asset and using your single annual exemption instead.


Invest in an ISA (Bed and ISA)

Investing in an ISA can be beneficial for higher and additional rate taxpayers due to its exemption from CGT, so it is important to consider this option when making financial decisions. Gains and losses made on investments held within an ISA are exempt from CGT. Utilising the ‘bed and ISA’ tactic can be a professional way to maximise tax savings. ’Bed and ISA’ is a way to invest without being exposed to the tax implications associated with CGT. By selling assets to realise a capital gain and then immediately buying back the same assets inside an ISA, all future gains can be exempted from CGT. This helps investors make the most of their ISA allowance each year as they are able to use up to £20,000 in the 2022/23 tax year for single savers or £40,000 for married couples and registered civil partners. Investors need to understand that they may pay stamp duty and other costs when repurchasing investments in an ISA and there is a risk that time out of the market, however small, will detrimentally impact your investments.


Contribute to a pension

Making regular pension contributions from relevant earnings is a highly effective way to save on CGT. A pension provides an ideal opportunity for those looking to reduce their CGT burden while ensuring their funds remain secure in the long term. Investing in pensions could not only make you more tax-efficient but provide peace of mind that your money will still be available when needed most.

By contributing to your pension, you can effectively increase your upper limit of the Income Tax band. For example, if you make a gross contribution of £10,000 into your pension pot in the 2022/23 tax year, it would move the point at which higher rate tax becomes payable up from £50,270 to £60,270. This means that any capital gain plus other taxable income now falls within this extended basic-rate income tax band and as such CGT is payable at just 10% instead of 20% (18% on residential property gains).


Give shares to charity

One of the most rewarding ways to support a charity is to donate shares. By donating qualifying shares, you may be eligible for Income Tax relief and CGT relief from HMRC. This means that the value of your donation could be worth more than if you had donated money or other assets. It’s important to remember that only certain types of UK shares qualify for CGT relief, so it’s best to consult professional financial advice before making any donations.

Additionally, as with all donations, it’s important to keep records of your gifts in case HMRC needs further information at a later date. Donating shares to charity can be an incredibly meaningful way to show your support whilst also benefiting from generous tax relief.


Invest in an Enterprise

Investment Scheme Enterprise Investment Schemes (EIS) allow investors to benefit from CGT relief on investments. This tax relief applies to qualifying investments in smaller, unquoted trading companies and can significantly reduce the amount of CGT due as well as providing other potential benefits. Any gains made on investments in an EIS are tax-free if held for at least three years from the later of the date of issue or the date the qualifying trade begins. Moreover, it is also possible to defer a capital gain by investing that gain in an EIS qualifying company but only within one year before or up to three years after the gain arose. Once money is taken out of the EIS qualifying company, the deferred capital gain will come back into charge. When investing in an EIS, professional advice should always be sought to ensure that you are making the most suitable decision for your individual circumstances. This scheme is higher risk than more traditional investments, so investors need to make sure that they fully understand the risks associated.


Claim gift hold over relief

Gift hold-over relief is a tax consideration for anyone transferring business assets. If you meet the requirements, then you are eligible for a tax reduction when giving away certain business assets. To be eligible, there must be a genuine gift of the asset and the recipient must not make any payment in return. In addition, both parties must agree to the transfer and it must have been made at least one year before the date of sale by the recipient. If you do qualify for gift hold-over relief, then you won’t have to pay CGT on the gifted assets; however, if they are subsequently sold by the recipient they may incur CGT liabilities . It’s important to note that it must be proven that the asset was given away and not sold in order for the relief to apply. If you’re considering utilising gift hold-over relief, professional advice is advised as there are a number of conditions that must be met before being eligible.


Chattels that escape CGT

Chattels are personal possessions, such as antiques and collectibles, for which CGT does not always apply. Wasting assets – items with a predictable life of 50 years or fewer – may be exempt from CGT altogether provided they were not eligible for business capital allowances.

For non-wasting chattels, the CGT position depends on the sale proceeds, those under £6,000 usually being free of tax. It is important to seek professional advice if you are unsure about any aspect of CGT relating to your chattels so that you can ensure that you comply with the relevant legislation.


Seek professional advice

When it comes to CGT, professional advice is essential. Seeking professional financial advice can help you understand your CGT options, make sure you are taking advantage of all tax reliefs, allowances and exemptions available to you and advise on the best course of action for your individual circumstances.

We provide comprehensive professional advice and can help guide you through the complexities of CGT. Each person’s financial situation is unique, so tailored advice will ensure that you get the most from your investments.

Getting Ready To Retire?

Bolstering your retirement lifestyle as you approach retirement

Have you ever wondered what you need to consider as you approach retirement? Whatever your concept of what is a good pension pot, one certainty is that relying on the State Pension alone will not give you a good enough pension to live on comfortably through your retirement.

‘Will I be able to retire when I want to?’ ‘Will I run out of money?’ ‘How can I guarantee the kind of retirement I want?’ These are hard questions to answer unless you obtain professional financial advice and why you need to start by reviewing your finances sooner rather than later to ensure your future income will allow you to enjoy the lifestyle you want.

After decades of working and saving, you can finally see retirement on the horizon. If you plan to retire within the next five years or so, consider taking these steps today to help ensure that you have what you need to enjoy a comfortable retirement lifestyle. Taking these actions now could help bolster your retirement lifestyle as you approach your planned retirement date.

8 Things to Consider as your Retirement Approaches

1. Track down your pensions
It’s important to track down all the different pension schemes you’ve previously paid into, so you can be sure you’re claiming everything you’re entitled to in retirement. If you’re unsure where to start, the UK government offers a pension tracking service to help you find lost pensions.

2. When can you access your pensions?
Since April 2015, pension freedoms have given savers in defined contribution (DC) schemes greater access to their cash, allowing flexible withdrawals from the age of 55.

3. What is your Pension’s Value?
The easiest way to find out how much your pension is worth is to check your pension statements. Whatever type of pensions you have, you’ll receive an annual pension statement from your provider. In it they’ll tell you how much your pension is currently worth and what it’s expected to pay out at your retirement date.

4. Get a State Pension Forecast
You can call the Future Pension Centre and ask for a State Pension statement. Your statement will tell you how much State Pension you have built up so far based on the National Insurance contributions and credits that are on your National Insurance record at the time your statement is produced. Contact the Future Pension Centre for questions about the State Pension or to ask for a statement. Telephone: 0800 731 0175, or from outside the UK: +44 (0)191 218 3600. Or obtain a forecast online at https://www.gov.uk/ check-state-pension

5. Get Investment Advice
If you are close to, or at retirement, you may want to reevaluate your plans. If you have access to other savings and investments, you might want to consider using these before accessing your pension. If you have other investments or savings, such as Individual Savings Accounts, stocks and shares, bonds, funds, property, etc, it’s worth checking their value as you approach retirement age asthey can support you in addition to your pension.

6. How Will you Access your Pension?
When it comes to deciding how to use your pension pot, there’s no one ‘right answer’. There are more pension options than ever thanks to the pension freedoms that allow savers access to every penny of their retirement savings. Your options may include taking a regular income or lump sums and keep investing the remainder in the stock market, or cashing in the entire amount. You can also choose to swap the money for a guaranteed income via an annuity.

7. How is your Pension Invested?
Pensions may be for the long term, but it’s important regularly to review where your money is being invested. You need to keep a close eye on which funds your retirement savings are in so that you can check you’re comfortable with the risks involved. You should also keep a close eye on how much you’re being charged, as fees can have a big impact on the amount you end up with at retirement.

8. The Benefits of Advice
Pension advice is important because pension products can be complicated, and life can be unpredictable. Professional financial advice will help you make the right decisions about your money and your future. Retirement planning is important because it can help you avoid running out of money in retirement. You need to know how much you’ve got, how to access it and when you can afford toretire comfortably.

The good news is that whatever your situation, and however you want to enjoy retirement, we can help set up bespoke arrangements that are right for your needs.

Pooled Investment Funds

The advantages of Collective Investment Schemes 

Pooled investment funds are usually large funds built by aggregating relatively small investments from individuals. A professional fund manager (or a team of fund managers) determines which assets to invest in and then purchases accordingly. They are also known as ‘collective investment schemes’.

By pooling resources with other investors, you are all able to achieve something greater than what you could achieve on your own. There is a diverse range of funds that invest in different things, with different strategies – high income, capital growth, income and growth, and so on.

Popular Types of Pooled Investment Fund

Unit trusts and Open-Ended Investment Companies

Unit trusts and Open-Ended Investment Companies (OEICs) are professionally managed collective investment funds. Managers pool money from many investors and buy shares, bonds, property or cash assets, and other investments.

Underlying assets

You buy shares (in an OEIC) or units (in a unit trust). The fund manager combines your money together with money from other investors and uses it to invest in the fund’s underlying assets. Every fund invests in a different mix of investments. Some only buy shares in British companies, while others invest in bonds or in shares of foreign companies, or other types of investments.

 

Buy or sell

You own a share of the overall unit trust or OEIC – if the value of the underlying assets in the fund rises, the value of your units or shares will rise. Similarly, if the value of the underlying assets of the fund falls, the value of your units or shares falls. The overall fund size will grow and shrink as investors buy or sell. Some funds give you the choice between ‘income units’ or ‘income shares’ that make regular payouts of any dividends or interest the fund earns, or ‘accumulation units’ or ‘accumulation shares’ which are automatically reinvested in the fund.

Higher returns

The value of your investments can go down as well as up, and you might get back less than you invested. Some assets are riskier than others, but higher risk also gives you the potential to earn higher returns. Before investing, make sure you understand what kind of assets the fund invests in and whether that’s a good ft for your investment goals, financial situation and attitude to risk.

Spreading risk

Unit trusts and OEICs help you to spread your risk across lots of investments without having to spend a lot of money. Most unit trusts and OEICs allow you to sell your shares or units at any time – although some funds will only deal on a monthly, quarterly or twice-yearly basis. This might be the case if they invest in assets such as property, which can take a longer time to sell.

Investment length

However, bear in mind that the length of time you should invest for depends on your financial goals and what your fund invests in. If it invests in shares, bonds or property, you should plan to invest for five years or more. Money market funds can be suitable for shorter time frames. If you own shares, you might get income in the form of dividends. Dividends are a portion of the profits made by the company that issued the shares you’ve invested in.

 

If you have any questions, please don’t hesitate to get in touch!

The Six Principles of Investing

How to invest your money and avoid costly mistakes…

Have a Plan and Stick to it 

It is one thing to have a target, but a sound financial plan can be the difference between simply hoping for the best and actually achieving your goals. You can review your plan regularly with your professional financial adviser and make adjustments when necessary, but staying focused on your plan will help you to not be distracted by short-term market uncertainty.

Think Twice Before Putting your Money into Cash

Putting all of your money in cash can seem appealing as a safe and secure option – but inflation is likely to eat away at your savings. For most people with longer-term investment plans, cash needs to be supplemented with investment in other asset classes that can beat the perils of inflation and offer better capital growth potential.

Diversify & Always Consider your Investments as a Whole

When markets are fluctuating, it’s all too easy to worry about the performance of certain investments while forgetting about the bigger picture. But when one asset class is performing poorly, others may be flourishing in the same market conditions. A diversified portfolio, including a range of different assets, can help to iron out the ups and downs and avoid exposing your portfolio to undue risk.

Start Investing Early if you Can

As a general rule, the earlier in life you start investing, the better your chances of longterm growth. Compound growth (the ability to grow an investment by reinvesting the earnings) is a powerful force but it takes time to deliver. The right time to invest is when you and your financial adviser have formulated a clear financial plan that requires growth.

‘Activity Bias’: The Urge to ‘Just Do Something’

Some people suffer from what behaviourists call ‘activity bias’: the urge to ‘just do something’ in a crisis, whether the action will be helpful or not. When investments are falling in value, it can be tempting to abandon your plans and sell them – but this can be damaging because you won’t be able to benefit from any recovery in prices. Markets go through cycles, and it’s important to accept that there will be good and bad years. Short-term dips in the market tend to be smoothed out over the long term, increasing the potential for healthy returns.

No Substitute For A Plan That is Tailored Specifically For You

Every single investor’s needs are different and, while the points above are good general tips, there’s no substitute for a plan that’s tailored specifically for you. What’s more, in volatile times, advice can help you take the emotion out of investing and provide an objective view. It may just be the best investment you ever make.

 

Turn your Pension Savings into an Income for Life

There are many things to consider as you approach retirement. It’s good to start by reviewing your finances to ensure your future income will allow you to enjoy the lifestyle you want. The earlier you start thinking about what you’ll need for a comfortable retirement and where your money is going to come from, the more control you can have over that period of your life. 

The changes in the retirement landscape mean some people are adjusting their expectations for retirement. With life expectancy still on the increase, the need to save and plan for retirement is becoming ever more critical.

The concept of ‘retirement’, as viewed through the opinions of those currently saving towards it, may have a broad range of meanings. But the reality is that traditional ‘retirement’ is changing, with few now seeing it as a singular event. The future of retirement is likely instead to see a fundamental change in people’s lifestyles, with a growing aspiration to combine work and leisure to help manage the costs of a longer life expectancy.

It’s also important to remember that any investment comes with risk. All investments can go down as well as up, and you may get back less than you invest. A pension is a long-term investment not normally accessible until age 55 (57 from April 2028). Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. You should seek advice to understand your options at retirement.

What can you do with your pension?
Deciding how you want to start taking money. Due to the changes introduced by the government in April 2015, when you reach the age of 55 (subject to change) you now have more flexibility than ever when it comes to taking money from your pension pot.

But before you do anything with your hard-earned cash, it’s important to take the time to understand your options, as the decisions you make will affect your income in retirement. Before you take money from your pension plan, it’s important to ask yourself if you really need it right away. When and how you take your money can make a big difference to how much tax you might pay and how long your money will last. Most pensions will set an age from which you can start taking money from your pension. They will also have rules for when you can take your pension earlier than normal, for example, if you become seriously ill or unable to work.

When the time comes to start taking money from your pension, you’ll need to decide how you want to do this. If you’ve got a personal pension or a defined contribution pension, you can take up to 25% of its value as a tax-free lump sum. The remainder of your pension fund will be taxable and may either be taken as cash, used to buy an annuity (a guaranteed income for a specific period or for the rest of your life), or you may leave the money invested and take withdrawals on a regular basis or as and when you need.

With a defined benefits pension, you may be able to take some of its value as a tax-free lump sum, but this will depend on the rules of your scheme. The rest of the money will be paid to you as a guaranteed income for the rest of your life.

Different levels of risk and security and potentially different tax implications
The different ways of taking your money have different levels of risk and security, and potentially different tax implications too. As with all retirement decisions, it’s important to take professional financial advice on what’s best for you. Everybody’s situation is different, so how you combine the options is up to you.

Annuities – guaranteed income for life
Annuities enable you to exchange your pension pot for a guaranteed income for life. They were once the most common pension option to fund retirement. But changes to the pension freedom rules have given savers increased flexibility. The amount you will receive depends on a number of factors, for example, how long the insurance company expects you to live and other benefits the annuity provides, such as a guaranteed payment period or payments to a spouse or dependent. Annuities can also be for a specific period, not just for life. This can be useful if someone wants a guaranteed income for part of their retirement, say say before the State Pension is payable.

Flexible retirement income – pension drawdown
When it comes to assessing pension options, flexibility is the main attraction offered by income drawdown, which allow you to access your money while leaving it invested, meaning your funds can continue to grow. Pension drawdown normally allows you to draw 25% of your pension fund as a tax-free lump-sum, or series of smaller sums.

This ‘tax-free cash’ is known as the PensionCommencement Lump Sum, or PCLS.
The rest of the fund remains invested and is used to provide you with a taxable income, via withdrawals on a regular basis or as and when you need. You set the income you want, though this might be adjusted periodically depending on the performance of your investments. You need to manage your investments carefully because, unlike a lifetime annuity, your income isn’t guaranteed for life.

Uncrystallised Funds Pension Lump Sum (UFPLS)
You do not have to draw your pensions commencement lump sum at the outset. Instead you may use your pension fund to take cash as and when you need it and leave the rest untouched where it can continue to grow tax-free.For each withdrawal, the first 25% (quarter) is tax-free and the rest counts as taxable income. There might be charges each time you make a cash withdrawal and/or limits on how many withdrawals you can make each year.

Combination – mix and match
It may suit you better to use a combination of the options outlined above. You might want to use some of your savings to buy an annuity to cover the essentials (rent, mortgage or household bills), with the rest placed in an income drawdown scheme that allows you to decide how much you wish, and can afford, to withdraw and when.

Alternatively, you might want more flexibility in the early years of retirement, and more security in the later years. If that is the case, this may be a good reason to delay buying an annuity until later.

Find out more about your options for taking an income in retirement and what you need to consider. If you’re unsure about the best approach for you, please get in touch with us for further information.

Investment Diversification

Investment diversification- it’s another way of saying “Don’t put all your eggs into one basket”. If we could see into the future, there wouldn’t be any need for portfolio diversification. Hopefully one day! But for now, we have Investment diversification as a tool to lower risk, balance your investment portfolio and give some extra peace of mind.

 
From a practical viewpoint, diversifying your investments offers more balance to your portfolio. It’s a risk management strategy to spread your money across a range of assets that have been previously known to perform differently in the same circumstances.

The 4 main asset classes are:

  • Cash
    • Bonds
    • Shares
    • Property

Each one carries its own advantages and disadvantages. Like most financial decisions there is no one way to invest, it is all dependent on your individual circumstances.

Risk Taker or Safe Player?


Where you are in your life or career will massively shape your attitude when it comes to investing. Under normal circumstances, diversifying your portfolio across different assets is an effective way to reduce risk. If you hold only one investment and it performs badly, you could lose all of your money. If you have a variety of different investments, it is very unlikely they will all perform badly at the same time and hopefully balance out one another.

What are the four main investment asset classes and the risks associated with them?


Cash

Cash, it is relatively secure but can lose value if the interest rate doesn’t keep up with inflation.

Bonds

These provide regular income. However, the main risk here is that the bond issuer cannot repay in full.

Shares

These provide regular income and an opportunity to grow over time. From a risk point of view, shares can go up and down and as a result so will your investment.

Property

This can provide stable and regular income and has the potential to grow over time. The downside is property prices can fall reducing the value of your investment and property transactions can take a long time, which means your money might be tied up longer than you want.

Talk to a financial adviser about investments, your goals and current situation to find an investment strategy that will suit you.

When investing in your future, remember It takes time to grow money. Making an investment can be daunting, especially if the market experiences volatility, which in the lifetime of investments it most certainly will. A lot of advisers will say give an investment at least ten years and during uncertainty, don’t lose sight of your financial goals. If you have concerns or worries about your investments, then don’t hesitate to get in touch. 

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Ethical Investing- Make Money and Make a Difference

If you were to invest in something, what would it be? Would it be for purely financial return or would you want to invest in something that will make the world a better place and still deliver a return? Well, let me introduce you to Ethical Investing.

Ethical investing is about investing where there are not just financial benefits, but benefits for the wider economy and the world. Also known as Sustainable and Responsible Investment (SRI), ethical investment adopts a range of investment styles to incorporate a client’s Environmental, Social and Governance concerns (ESG).

Part of ethical investing is the ESG issues. Alongside traditional investing, it takes into account the Environmental, Social and Governance factors to create a more sustainable portfolio. These aspects form the base for conscientious investors to assess a company’s overall economic and social impact and how this will affect the business model over time. There is a wealth of different techniques that investors take to assess a company’s ESG issues and balance the risk and return. Different investment houses take different approaches when it comes to ethical investing. This particular approach is used by Parmenion but I find these profiles the clearest, just keep in mind that every investment house is different and their profiles differ.

There are 4 ESG profiles that are graded for risk, capacity and loss. There are:
Ethical Profile A: Responsible Leaders
Ethical Profile B: Sustainability Leaders
Ethical Profile C: Ethical Leaders
Ethical Profile D: Traditional Ethical Leaders

When considering ethical investment one of the first 4 profiles is:

Ethical Profile A: Responsible Leaders.

Investment’s criteria based on this profile typically focus more on the positive aspects of the company rather than the exclusions.
These companies represent organisations that are good corporate citizens. These companies are selected for their good corporate governance and business responses to environmental and social issues.

It’s a positive orientated approach to investing as the focus is on the company’s behaviour and approach to the ESG concerns.


Ethical Profile B: Sustainability Leaders


The second profile are the Sustainability Leaders, the aim is to support companies with leading sustainability practices and encourage improved behaviour. This portfolio invests in businesses which take a more active approach to help address environmental and social challenges. While still a positively orientated approach, it takes into account how they are actively pursuing positive ESG outcomes rather than simply responding like Profile A. Companies that sit in this profile offer products and services that help reduce the negative impact of our lifestyles on the environment and society.

Here are a couple of companies that rank highly as Sustainable Leaders: Unilever, Patagonia, and IKEA are among the Most Recognized Sustainability Leaders.

Ref: https://globescan.com/unilever-patagonia-ikea-sustainability-leadership-2019/

The 3rd Profile for Ethical Investing is:

Ethical Profile C: Ethical Leaders

This portfolio takes a more balanced approach to investing that provide positive and negative screening. Unlike A and B these leaders must meet specified avoidance criteria to qualify for investment. This profile balances the pros and cons of investment opportunity and select only those that meet the strict criteria. Some of the screening may include avoidance of:
Armaments
Animal Testing
Human Rights Abuse
Environmental damage

To name a few, there are many different screens depending on the investor.

The fourth and final profile in ethical investing is:

Ethical Profile D: Traditional Ethical Leaders

Similar to ethical leaders but there is a much stronger emphasis on avoidance of controversial businesses and activities. The funding provisions are subject to the strongest ethical, social and environmental avoidance criteria and it runs an incredibly strict avoidance schemes.

People who have never invested before are now considering it due to ethical investing and the potential it has on the wider environment as well as bringing in financial gains. How you decide is based on your own principles and definitions of ethics.

Investing is an area where it is so important to speak to a financial advisor to ensure you and your money are well protected. Together, we can change the world!

Ethical responsibility is something we all face now. Want to know more? Get in touch.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

How are pensions divided during a divorce?

Going through a divorce is incredibly hard and when the subject of finances arises, it can become even more stressful.

If you’re going through a divorce, agreeing the financial arrangements can seem like a huge task. Coming to an agreement in regard to who is entitled to what is nothing short of confusing.

Pensions are usually the largest or second largest financial asset and often one member of the party will have a larger pension than the other. For example, someone who has given up work to raise a family. The decision is then, should the pension pot be divided, or should that person receive more of another asset, like the marital home.

When it comes to dividing up pension assets, there is no simple solution. The best course of action is to have your pension reviewed by an impartial financial advisor who can help you decide the best course of action.

How do pensions get valued during divorce?

Divorce is an emotional and complex time and trying to split your financial assets can be a long process. Pensions are considered in the financial settlement and the universal valuation method for pensions is the Cash Equivalent (CE). Each party will be required to obtain a CE. While these are simple to obtain and provide a snapshot of the value of a pension, they can also be inaccurate. The calculations are done by the trustees and valued in accordance with their own rules and the value of the benefits can be very different for each individual.

Dividing pensions differs depending on where you live in the UK. In England and Wales, the total value of the pension you have built up is taken into account during divorce proceedings, not just when you were married, that is everything apart from your state pension. Yet in Scotland, it only takes into account the pension you have built up during the course of the marriage.

Methods for dividing pensions during a divorce

If you’re going through a divorce, you might be wondering about the method available for splitting a pension.

Pension sharing

This is generally the most common route in divorce courts as it gives back a certain amount of control of their finances. It allows one party to secure a percentage of the other persons pension rights and this is put into their own name.

Remember, a pension remains a pension and will be invested until that person reaches retirement age.

Offsetting

This involves balancing the pension fund against other matrimonial assets, like a house. It is worth remembering though that the value of pensions could be much higher than at the time of assessment.

Earmarking

This is when the court awards a percentage of the income from the pension to the former spouse. Sounds fair, but the income stops on the death of the pension holder or in the instance of remarrying.

Deferred lump sum order

This is an agreement that both parties will receive an agreed lump sum when the pension holder retires.

Pension attachment order

When the pension holder retires, a portion of the lump sum and pension income will be paid to the other party based on the funds value at the time.

The biggest question might be, do I really need to share my pension? There isn’t a definitive answer as it is dependent on a range of other circumstantial factors. Always seek advice regarding your pension assets and the best solution for you.

For more information regarding your pension, get in touch.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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