Life is full of milestones and events which can all have a significant impact on our lives and our finances. Whether these events happen unexpectedly or as a result of lengthy planning these events can bring both excitement as well as stress, especially where their impact on our finances is concerned.
For this reason, it is crucial, where you can, to prepare as much as possible for such instances by having an understanding of the implications some life events can have on your financial situation and building a financial strategy in response to these.
Buying or Selling a Home
Buying a home is an event which can be very exciting, however it is also widely accepted as being one of the most stressful times in our lives as well.
From a financial point of view, preparing for a house purchase involves arranging the funds to complete the transaction, arranging any required borrowing and understanding how taxes will be calculated and ensuring you are prepared for these costs.
When buying property in the UK, stamp duty land tax (also known as land and buildings transaction tax in Scotland and land transaction tax in Wales) will be one of the main tax considerations to make. The amount of this depends on the value of the property you are purchasing as well as on whether it’s your first and/or only property.
In addition to this, some property sales may incur capital gains tax (CGT) on the profit made on the sale – again this is dependent on your personal circumstances and the context of the sale but may be especially relevant if it isn’t your primary residence.
As well as the taxes to pay, it is important to ensure the required and correct returns are submitted to HMRC.
Should you ever find yourself planning a property purchase or sale, our specialist tax team at PayStream are always on hand to advise and point you in the right direction to ensure you are as prepared as possible for this.
Getting Married or Starting a Family
Marriage and starting a family are two events in life which are full of excitement and can be life-changing in many ways. One aspect of this is on the new demands they can have on your financial and tax positions.
Marriage offers potential tax benefits, such as the marriage allowance, to be taken up. This allowance essentially means that a lower-earning spouse can transfer part of their personal allowance to the other spouse who earns more. Doing this can reduce the tax payable on that higher-earning spouse’s earnings, thereby reducing the overall tax burden of you as a couple.
Similarly, when starting a family, it would be wise to consider further you and your family’s eligibility for things like Child Benefit as well as access to tax-free childcare schemes. Or it may be important to be aware of and plan for the High Income Child Benefit charge.
Inheritance Tax
Whilst these conversations do not bring the same kind of excitement as property purchases, marriage & starting a family, planning your estate is still an important area to consider, in order to ensure that you can leave your estate to your loved ones without excessively large tax bills.
Through the effective use of gifts, trusts and inheritance tax allowances, it may be possible to significantly reduce the tax burden on your estate and those you leave it to. This is an area which is very personal to you and your own personal circumstances and so we would always advise that it is best to begin this conversation with the support and expertise of an independent financial advisor. They will be able to look into your situation in detail and, from this, can develop an estate plan aligned with your financial goals, making the most of tax-free allowances and ensuring your estate is handled efficiently.
Retirement & Pensions
When you make the decision to stop working, it is important to ensure that the money you have worked so hard for now works as hard as possible for you in your retirement.
Regarding making withdrawals from your pension pot, in the UK you may withdraw a lump sum of up to 25% of your pension pot tax-free. Outside of this lump sum, pension payments you receive are likely to be subject to income tax in the same way as income derived from employment.
In addition, other income you receive in retirement such as from investments or property may be subject to tax depending on the nature and amount of this. It is therefore strongly advised that you make plans around the income you need to receive in retirement, and therefore the tax you might pay on this, so that you have the full picture of what your disposable income will be.
Your dedicated accounts team can provide further guidance on these areas and how they might apply to you should you ever need this advice – please don’t hesitate to reach out should you need.
