Thinking ahead when it comes to retirement planning is vital for anyone who wants to enjoy a financially comfortable life in their later years and pass on their legacy to the next generation in a tax-efficient and sensible way.
At a time when life expectancy is rising and healthcare is evolving, many Britons are living for 30 or more years after they retire, which is why making adequate preparations for retirement is now more important than ever before.
However, from ISAs and savings products to property investments and pensions, the world of retirement planning is complex and confusing, as is thinking about the tax implications of your retirement planning activities. Here are a few things to keep in mind:
Pensions are one of the most important aspects of retirement planning. But equally important is structuring your investments in a tax-efficient way and ensuring that the contributions you pay benefit from tax relief where appropriate.
Appropriate insurance cover
It is important to consider the benefits of life assurance, long-term care and medical insurance in order to safeguard yourself and ensure that you and your family are guaranteed a good quality of life.
Buy-to-let property investment
Investing in property can prove to be very lucrative, but those who do need to factor in the associated costs.
For example, there are the recent changes to Stamp Duty Land Tax (SDLT) on additional property purchases to consider, as well as the phasing out of mortgage interest tax relief if you intend to let out a property in order to supplement your retirement income.
Furthermore, anyone who is investing in a property with a view to selling it on needs to plan ahead for the Capital Gains Tax (CGT) implications of this.
Passing on your business to the next generation in a tax-efficient way
If you are a business owner, you might wish to pass your business on to other members of your family when you retire or sell the business on.
However, whatever your wishes, you will need to seek specialist tax advice and plan ahead accordingly from an early stage to avoid facing unfavourable tax consequences.
Drafting a Will can help you to ensure that your estate is passed on in line with your wishes when you die. However, you will need to think about the Inheritance Tax (IHT) implications of passing on your legacy and plan ahead accordingly.
Each individual in England and Wales is entitled to a tax-free allowance of £325,000, above which estates will attract IHT at a rate of 40 per cent.
Fortunately, there are various ways you can mitigate your IHT liability, such as by leaving money to a charity in your Will or passing property down to direct lineal descendants using the residence nil rate band (RNRB).
Good investment and future planning is hard work, which is why it is wise to seek specialist advice early on. To find out how McGills can help, please get in touch today.