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January Newsletter- originally from Substack

These are the topics I have been discussing most over the last few months. I hope they will provide you with some pointers.

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  • Care Fees – what is going on?
  • Pension Exemptions From Inheritance Tax
  • Using Limited Company Planning For Inheritance Tax
  • Deposit Rates

Don’t forget, if you have a specific question, please get in touch.

Care fees in the United Kingdom.

Care Fees – the cost of receiving long-term care in a residential setting, such as a nursing home or assisted living facility.

These fees can vary greatly depending on the location and type of care needed, they can be expensive and of course can quickly deplete a person’s savings and assets.

In 2017, the UK government introduced a care cap, which set a limit on the amount of money an individual would have to pay for their care. This cap is set at £86,000 (as we speak), there has been some fiddling with the cap amount and then the ‘can was kicked’ to October 2023 in the hope of a final roll out.

Government have also said that the ‘capital limits’ are also going to be increased from £23,250 to £100,000. This means that if you have up to £100,000 available you will never contribute more than 20% of those assets in any one year.

As background it is worth noting that this cap was originally mooted in 2011 and will not be implemented until 2023 at the earliest. My guess is, they are unlikely to be introduced in the currently proposed form, there will be a need to make changes and an election promise will be made for the next Parliament. Given the mess that Government finances are in…

All of the other tax changes made in the last budget won’t take effect until lafter the next election, so my view is, these reforms are unlikely to see the light of day.

The link is below.

https://www.gov.uk/government/publications/build-back-better-our-plan-for-health-and-social-care/adult-social-care-charging-reform-further-details

The care cap has been criticised for not being enough to cover the costs of care, especially for those with more complex care needs. It has also been criticised for not adequately addressing the issue of intergenerational fairness, as many people have to sell their homes to pay for care costs, leaving nothing for their children or grandchildren.

My two responses to that are..

We have to take responsibility for our needs anyway and inheritances are a pretty new phenomenon for many, and are primarily due to the increase in house prices. For more complex healrh – where you are close to death but not quite dead yet. The NHS Funded Continuing Care is available. It’s worth noting that very few do qualify, but I have been involved in several succesful appeals.

There are several ways to reduce the impact of care fees in the UK:

  1. Plan ahead: It is important to plan for the possibility of needing long-term care as early as possible. This can include making financial arrangements, such as setting aside savings or purchasing long-term care insurance.
  2. Use government benefits: There are several government benefits that can help cover the costs of care fees, including Attendance Allowance, Disability Living Allowance, and Personal Independence Payment. It is important to check whether you are eligible for these benefits and how to apply for them. These won’t make a major difference to the costs of care, but are still valuable.
  3. Use a deferred payment agreement: If you own a property and are receiving care at home, you may be able to enter into a deferred payment agreement with your local council. This allows you to defer payment of your care fees until a later date, typically when your property is sold.

From a planning perspective it is possible to protect some of estate, but not all. And, the often sold trust options are incredibly risky .

It is important to carefully consider your options as early as possible.

You might have heard me say that before.

Pensions – Exemptions – Inheritance Tax

Inheritance tax is a tax that is levied on the value of an individual’s estate (assets and property) when they die. There are various ways to reduce inheritance tax, including the use of pensions. Here are a few ways you can use pensions to potentially reduce inheritance tax:

  1. Make contributions to a pension plan: Contributions to a pension plan may be eligible for tax relief, which can reduce the value of your estate and therefore the amount of inheritance tax that needs to be paid.
  2. Use pension funds to pay for long-term care: If you are entering a care home and have a pension, you may be able to use some of the funds to pay for your care. This can also potentially reduce the value of your estate and the amount of inheritance tax that needs to be paid.
  3. Nominate a pension beneficiary: If you have a pension plan and you name a beneficiary in your will, the funds in the pension plan may well be excluded from your estate for inheritance tax purposes.

In the UK, most pension plans and benefits are exempt from inheritance tax, meaning that they are not subject to tax when they are passed on to beneficiaries after the death of the pension holder. This includes personal pension plans, stakeholder pension plans, and some occupational pension schemes. These exemptions apply to the value of the pension plan or benefit, as well as any contributions that were made to the plan during the pension holder’s lifetime.

There are some limitations to these exemptions, however. For example, if the pension holder has designated a beneficiary other than their spouse or civil partner, the value of the pension plan could be subject to inheritance tax.

Additionally, if the pension holder has taken any lump sum payments from their pension plan prior to their death, those payments may be subject to inheritance tax. As always, there is a bit of added complexity.

Overall, these exemptions provide an important financial benefit to pension holders and their beneficiaries, as they can help to ensure that the value of a pension plan is preserved and passed on to loved ones without incurring additional taxes.

  1. Personal pension plans: These are private pension plans that are set up by individuals to provide income in retirement. Personal pension plans are generally exempt from inheritance tax as long as the beneficiaries are either the pension holder’s spouse, civil partner, or a charity.
  2. Occupational pension schemes: These are pension schemes that are set up by an employer for the benefit of their employees. Occupational pension schemes are generally exempt from inheritance tax as long as the beneficiaries are either the pension holder’s spouse, civil partner, or a charity.

It’s important to note that the exemptions from inheritance tax only apply to the pension assets themselves, and not any other assets that the pension holder may have.

If the pension holder has other assets that are not exempt from inheritance tax, such as property or investments, those assets may still be subject to inheritance tax when they are passed on to beneficiaries.

Pension Planning Options.

It is entirely possible that family wealth could be tied up in pensions and be passed down from one generation to another without incurring an inheritance liability which is good news.

Problem is, just about every incoming Government changes pension legislation in some way. Which is the one thing that makes me wary of this kind of planning.

For those of you that are still holding ‘old style’ Retirement Annuity type plans or Personal Pensions with ‘guaranteed annuity rates’ then these options may not be available.

Using Limited Company Planning For Inheritance Tax

In the United Kingdom, limited companies are separate legal entities from their owners and can be used to hold assets such as property and investments. As a result, it is possible to use a limited company to potentially reduce the amount of inheritance tax that needs to be paid. However, it’s important to note that there are specific rules that must be followed in order to do so effectively.

One way to potentially use a limited company to reduce inheritance tax is to transfer ownership of assets to the company, such as property or investments. This can potentially reduce the value of an individual’s estate for inheritance tax purposes, as the assets are now owned by the company rather than the individual. However, it’s important to note that the transfer of assets to a limited company may be subject to capital gains tax.

Another way to use a limited company to potentially reduce inheritance tax is to hold life insurance policies in the company’s name, with the company as the beneficiary. If the company is named as a beneficiary in the policy, the proceeds may not be included in the individual’s estate for inheritance tax purposes.

It’s important to note that the rules for inheritance tax and limited companies can be a bit more complex and have costs attached but they still work. One of the reasons for the Duke of Westminster not having to make any tax payments is just a bit more complexity in his planning.

Current Deposit Rates – Looking Better.

If deposit interest rates in the UK increase, it means that savers will be able to earn more interest on their deposits. This is typically a positive thing for savers, as it means that they will be able to earn more money on their savings without having to do any extra work.

However, it is important to note that higher interest rates may also lead to higher borrowing costs for consumers and businesses. This means that individuals and companies may have to pay more interest on loans and mortgages, which could potentially offset the benefits of higher deposit interest rates for savers.

Overall, the impact of higher deposit interest rates on savers will depend on their individual circumstances and financial goals. Savers may benefit from earning more interest on their deposits, but they should also be aware of any potential negative impacts on borrowing costs.

Deposit interest rates increase in the UK, are generally be seen as a positive development for savers. This is because higher interest rates on deposit accounts means that savers will earn more on their money, which can help to boost their overall savings and potentially provide a higher return on their investments.

However, it is important to note that higher interest rates may also have some negative impacts, such as increasing the cost of borrowing for individuals and businesses.

Overall, the impact of higher deposit interest rates on savers will depend on their individual financial situation and how they choose to use their savings. For those who rely on the income from their savings to fund their day-to-day expenses, higher interest rates can be a welcome boost. However, those who are planning to borrow money in the near future may find that higher interest rates make it more expensive to do so.

Deposit Rate Options – Interesting rate increases this week (Source Moneyfacts.co.uk)

Skipton Building Society are offering 2.65% online or face to face. Min deposit £5,000

Yorkshire are a close second at 2.60% both are immediate access accounts.

Shawbrook and Hargreaves are offering 4.19% and 4.10% for one year products.

Not so long ago we were grateful to be getting .15% how things change.

Also, we are seeing some of the more conventional lenders back in the top savingsproducts. That is a welcome change. I wish the high street lenders were doing more.

Please get in touch if you would like to discuss any of this content or perhaps just want some reassurance as to what you should do next.

Richard Smith.

www.moneytrainers.co.uk www.thefinancezone.co.uk

PS – much of the internet is in awe of the news about Chat from Open AI the newly launched Artificial Inteligence which is all knowing. Some of this has been written by that.

I have had to edit out much of it because it was technically incorrect. Guess that means some of us will be in a job for while.

PPS For those of us suffering with ‘post Christmas blues’ or S A D then there is only a month or so to go before the sunset gets past 6pm.