The latest figures from the Office for National Statistics (ONS) are out, and inflation, as measured by the Consumer Prices Index (CPI) has fallen to the lowest level in almost three years.

Headline inflation came in at 2.3% in the 12 months to April 2024, down from 3.2% the month before, while core inflation declined from 4.2% to 3.9% in the same period.  

The Bank of England has hinted that UK base rate, which has been raised in recent years to slow price rises, could be cut this summer. Base rate is currently at 5.25% - the highest level in 16 years.

Anna Bowes, Co-founder of Savings Champion says “The latest inflation data is out, and the current situation is a savers dream - interest rates have remained pretty stable, while the rising cost of living is slowing! As we know, while inflation may have fallen to 2.3% which is close to the government target, it doesn’t mean that prices are falling, it means that the rate at which costs are rising has slowed. And if you can find a savings account that is going to pay you more than the rate at which your cost of living is going up, that could mean extra pounds in your pockets.” 

Falling inflation does not mean the prices of goods and services overall are coming down, it just means that they are rising at a slower pace.

What is inflation and how is it measured?

Inflation is a measure of how the prices of goods and services have increased over time.  

Goods are tangible items sold to customers, such as food, while services are tasks performed for the benefit of recipients, such as a haircut. Generally, this increase is measured by considering the cost of things today compared to how much they cost a year ago. The average increase between these prices is demonstrated in the inflation rate.  

Rising inflation rates directly affect the cost of living. For example, if the price of a bottle of milk is £1, and inflation is increasing by 5%, then your bottle of milk will cost you 5p more. Or, in other words, the spending power of your money has decreased by 5%.  

Ideally, the Government wants to keep inflation low and stable. The general mandated target for the Bank of England is 2%. Anything significantly above or below this target is thought to cause issues for the economy.  

Beating inflation

Although inflation is falling, it’s important to remember that the prices of goods and services overall are still rising, just at a slower rate than before. For example, services inflation only declined by 0.1% in April, virtually unmoving against the headline inflation decrease. However, there are a number of simple ways that you can mitigate these differences.

“If you have your cash with a high street provider, you are particularly vulnerable. For example, the Barclays Everyday Saver account is paying just 1.66% on the first £10,000 deposited into that account, balances of over £10,000 will earn a diluted return as the amount over £10,000 will earn just 1.26% - well below inflation!  

In the meantime, you could earn up to 5% on the top paying easy access accounts and more if you are happy to tie some of your money up. The top 1-year bond is paying 5.21% whilst the top 5-year bond is paying 4.57%. Whilst the longer term, lower paying bonds look like a poorer proposition at the moment, it makes sense to think longer term too. What happens if interest rates fall sharply over the next few years? You might feel pretty pleased with yourself in a couple of years if you had locked at least some of your cash up for longer, hedging against inflation and interest rate cuts!” - Anna Bowes, Co-founder of Savings Champion. 

With headline inflation and interest rates uncertain, it’s more important than ever to make sure your finances are handled responsibly and with the right guidance. At TPO, we understand the stress surrounding the current economic climate. Our chartered financial advisers are unbiased and completely independent, meaning that they can give whole of market advice, and so are best placed to give you a plan tailored exactly to your personal financial goals.  

If you’d like to know more, request a free non-committal initial consultation with one of our team or give us a call on 0333 323 9065 and get in touch. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The interest rates are correct as of 24th May 2024.

A power of attorney, also known as an LPA (Lasting Power of Attorney) is when you give another individual the legal power to make decisions about your health, welfare, or finances. 

Establishing a power of attorney is a critical part of anybody’s financial plan, because it gives you the peace of mind that someone you trust is in charge of your affairs if it became necessary for them to do so. Life is not linear and unexpected events occur that we are not prepared for; this is why it is better to take pre-emptive steps now to give you this comfort.

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When are powers of attorney used?

There are two main types of Power of Attorney that you should be aware of, which cost £82 each to set up.

A Property and Financial Affairs POA can be used when the donor has capacity, unless the document specifies otherwise. In contrast, however, a Health and Welfare POA can only be in the event that you stop having the mental capacity to do this for yourself. Having mental capacity refers to the cognitive ability to make your own decisions and understand the implications of such decisions coherently.

Property and Financial Affairs

• This gives your attorney the powers to make decisions on all things related to your financial affairs and property.
• This can range from managing your bank accounts, organising bill payments, paying off debts, or even selling a property.
• Crucially, this type of LPA gives the attorney the powers to act in this capacity immediately, regardless of whether you have lost mental capacity or not. As such, if you do not wish for this to be the case, you must clearly state this when creating the LPA.

Health and Welfare

• This gives your attorney the power to make decisions over your medical care, as well as your daily routine (washing, eating, etc).
• Your attorney(s) will have the power to decide where you live, whether a care home is appropriate, or indeed whether certain treatments are suitable
• Conversely, this can only be in effect once you lose mental capacity to appropriately act for yourself.

How to set up a Power of Attorney?

The first step in this journey is, of course, deciding on whom you wish your attorney(s) to be. This will need to be someone that you are confident you can trust and will act in your best interest in the event of you losing mental capacity.

You will firstly need to obtain the LPA forms and an information pack from the Office of the Public Guardian. This can be done online through Gov.UK or you can order them by calling 0300 456 0300. The Office of the Public Guardian’s own website has a step-by-step guide to completing the forms correctly, as it’s vital that you do not make any mistakes as this can lead to  the request being rejected. For a fee, a solicitor can help complete the forms.

At this point, you will need to have the LPA signed by a ‘certificate provider’ which is someone that confirms you have not been put under pressure to sign it. This can be someone that you have known for over 2 years, or a professional person (doctor, solicitor). You will then need to sign the completed forms and send them to the Office of the Public Guardian.

How long does power of attorney take to set up?

Once you have completed the steps above, you will then need to register the LPA with the Office of the Public Guardian. Your LPA will not be viable until this registration has been complete. This process can take up to 20 weeks, so please be aware of this when you are considering establishing an LPA. This also adds weight to the argument that you should consider sorting this out now without further delays.

If you do not feel confident in doing this yourself, you may find it easier to use a solicitor so that you know you have gone through the correct process. Please do not hesitate to get in contact with us at The Private Office as we have many professional contacts that we can put you in touch with for this service.

Who can override a power of attorney?

Like many things, you can of course revoke and cancel the power of attorney at anytime. However, you must still have mental capacity to do so. The process will involve you informing both your attorney and the Office of the Public Guardian that you are revoking it so that they can remove the active LPA from the register.

Why obtaining a power of attorney shouldn’t be ignored

Most people are aware that they should have a will in place to organise their affairs when they pass away. However, there is not the same emphasis placed on obtaining an LPA for when you are still alive. A study from Canada Life highlighted that around 77% of over 55s in the UK have not registered any form of LPA, yet around 1 in 14 people over the age of 65 in the UK suffers from dementia. 

It is crucial that this should be viewed as a high priority when you are addressing your personal financial planning. At a cost of £82 (or £164 for both), it is something that is well worth getting organised so that you can have peace of mind that you will be cared for if the worst were to happen.

If you’d like to find out more about how we can help, why not get in touch and speak to one of our expert team for a free initial consultation.

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This article is intended for general information only, it does not constitute individual or legal advice and should not be used to inform financial decisions. 

In essence, the new British Savings Bond is simply a re-issuance of the NS&I 3-year Guaranteed Income and Guaranteed Growth bonds, rather than anything new or British! And the rate they are offering is 4.15% gross/AER for the Guaranteed Growth Bond and 4.07% gross/4.15% AER for the Guaranteed Income Bond.

As was reported just after the budget and as is often the case with NS&I products, whilst the interest rate is not rock bottom, it’s mid table, so is likely to still be popular, especially for those rolling over old bonds, and for those with more than the FSCS limit of £85,000, because of course all cash held with NS&I is guaranteed by HM Treasury.

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At the time of writing, the top 3-year bonds are paying around 4.70% AER. On a deposit of £50,000, you could earn over £1,000 more after three years if you choose a top paying bond.

One thing to be aware of is that if you choose the Guaranteed Growth version of the British Bond, as there is no option to take an income at all, all of the interest earned will count towards your taxable income in the year the bond matures, rather than being spread out over the term of the bond, even though interest is added and compounded each year. With many other bonds, if you at least have the option to choose to have the interest paid out or compounded, the interest is deemed to be paid annually and therefore should be added to your taxable income each year.

The reason this could be significant is because if all the interest is deemed to have been received in one year rather than spread over the term of the bond, it could mean a larger tax bill, as you can’t spread the interest over the term of the bond and therefore utilise the Personal Savings Allowance (PSA) each year.

The PSA was introduced in April 2016 and it means that basic rate taxpayers can earn up to £1,000 per tax year, before they have to pay tax on the interest on their cash savings accounts. The PSA for higher rate taxpayers is £500 and additional rate taxpayers don’t receive a PSA.

However, you cannot roll over any unused PSA, so if you don’t earn £1,000 in savings interest in one year, but you earn more than the allowance in the following year, that’s tough luck. You’ll still owe tax on any interest over the allowance for that individual tax year.

For many customers, this may not have too much of an impact, especially if you are already using your PSA. But it’s important to be aware.

And let’s not forget that for some, it could mean that they are pushed into a higher (or even worse, the highest) tax bracket for that year.

How much more tax could you be paying?

Let me give you an example which assumes the saver is a basic rate taxpayer and has no other savings accounts held elsewhere.

If you deposited £50,000 into the NS&I Guaranteed Growth Bond 3-year term (British Savings Bond), paying 4.15% AER, if the interest is deemed to be paid annually, you would receive gross interest of £2,075 in year one, £2,161.11 in year two (due to the compounding effect of rolling the interest over) and £2,250.80 in the final year, breaching the PSA each year. But if this were spread over the term, in this example you would pay 20% tax on £1,075 in year one, on £1,161.11 in year two and on £1,250.80 in year three – so £697.38 in total.

However, as the interest is counted only in the year of maturity, a total amount of £6,486.91 will be received in one fell swoop. Therefore, tax of 20% is due on the £5,486.91 that exceeds the PSA, so there would be £1,097.38 of tax to pay on your savings– a pretty significant unexpected increase, from £697.38 tax to £1,097.38!

Some savers will be eligible for the starting rate for savings, which means that you can earn an extra £5,000 in interest before it is liable for tax, however this only applies to those whose other income (so wages or pension income for example) does not exceed £17,570.

The majority of fixed rate bonds from banks and building societies do not make their interest payments in this way. If the bond offers the option to either take the interest annually or roll it over, it is likely that the interest is deemed to be received annually, even if it is rolled over.  The top paying 3-year bond that gives savers the option to take an annual (or monthly income) or roll it over is the new 3 Year Fixed Term Savings Account with RCI, paying 4.70% AER.*

Again, assuming the same deposit amount of £50,000 as in the NS&I example above, although the top rate is paying a higher interest rate, a basic rate taxpayer would likely pay less tax, as it is shared over the term of the bond.

On a bond paying 4.70% AER, in year one the interest earned would be £2,350 so the saver would pay 20% on the excess £1,350 which equates to £270, in year two it’s a little bit more interest - £2,460.45 - so the tax due is £292.09 and in year three it’s £2,576.09 interest, with a tax liability of £315.22 - total tax due would be £877.31, which is £220.07 less than the NS&I Guaranteed Growth Bond– even though the interest rate and therefore the gross interest earned is higher. After tax you’d earn £6,509.23 on the RCI bond, versus £5,389.53 on the NS&I bond – more than £1,000 extra.

Please note that these calculations are for illustrative purposes only. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice. 

The accounts and rates mentioned in this article are accurate and correct as the time of writing 17/04/2024.

Individual Savings Accounts, or more commonly known as ISAs, are one of the most tax-efficient methods of saving and investing and are available to UK residents only.

Any interest, dividends, or capital gains earned within an ISA are usually exempt from income tax and capital gains tax, which hugely benefits individuals in boosting returns on investments compared to holding them in taxable accounts. This is why it’s wise to understand the importance of ISAs and understand how they form a useful tax-efficient element of your holistic financial plan. But what are the different types of ISAs available to you, and what are the benefits they can offer you in differing stages of the financial planning life cycle. ISAs are inherently useful, but used at the wrong time in your life can make them inefficient in achieving your financial goals. Of course, managing your assets is a highly personalised process, and how much you want to allocate to ISAs should reflect your own individual circumstances.

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How much can I invest into an ISA?

The ISA allowance for the current tax year 2024/25 is £20,000, which it has remained at since 2017 when the Government announced plans to freeze this and other allowances until 2026, which was later extended to 2028. You can allocate your entire allowance to one type of ISA or spread it across the different types that we’ll look at shortly. The good news is the new tax year 2024/25 introduced a new rule, where you can open multiple ISAs of the same type with more than one provider in the same tax year, whilst retaining your annual allowance.

The different types of ISAs

Cash ISAs – These are specifically designed for cash savings accounts offered by banks and building societies. Cash ISAs, much like standard taxable savings accounts, come in various forms, including instant access accounts, regular savings accounts, fixed-rate accounts, and variable-rate accounts. This allows individuals to choose the type of account that best suits their savings goals and preferences.  And of course, all interest earned, whilst held in an ISA, is tax free.

If you are interested in exploring what cash ISAs have to offer, please check out our Cash ISA page, which displays the best rates currently available.

Stocks & Shares ISA – These offer the opportunity to invest your cash into wide range of investments, from individual stocks to collective investment funds. These are well-suited for long-term investing, as they offer the potential for higher returns compared to cash savings. However, as the returns are linked to the performance of the investments, the value of the investment could fall as well as rise.

Lifetime ISA (LISA) – These are designed to help young people save for their first home or retirement and can either be held as cash or investments. To be eligible, you must be aged between 18 and 40 and can contribute a maximum of £4,000 per tax year. To incentivise savers, the Government contributes an additional 25% bonus on your contributions up to a maximum of £1,000 per tax year.

The cut-off date for contributions into this type of ISA is 50 years old, however, your account can stay open, and your cash savings or investments can continue to grow. If you opt to not use your funds to purchase your first home, the earliest you can access the money is at age 60. 

Junior ISA (JISA) – These offer a long-term saving and or investment opportunity for children under 18. They can also be in the form of cash or stocks and shares ISAs. The annual allowance is £9,000 per tax year, and the money cannot be accessed until the child turns 18. Parents or guardians can open a Junior ISA, but the child can take control at age 16 and withdraw money at age 18.

Innovative Finance ISA – This ISA contains peer-to-peer loans instead of cash or stocks and shares ISAs. Peer-to-peer lending matches lenders up with borrowers in return for interest. As banks are not used and money is invested through an online portal, you can potentially earn higher interest rates than a traditional savings account. Please be aware that these are slightly more complex ISA wrappers and are not protected by the Financial Services Compensation Scheme, so the risk of losing money is higher.

A new 'British ISA' was announced in the Spring Budget and is still under consultation. What we know at this point however, it should offer an additional £5,000 tax-free ISA allowance for investments into British companies, and should be in addition to the standard £20,000 ISA allowance which has remained unchanged.

Further details to follow including when this will be available.

Which ISA is right for you?

How to select the best ISA for you will be determined by your individual savings goals, attitude to risk and time horizons to grow your pot. The following scenarios attempt to demonstrate which ISAs might be suitable for individuals at different stages in their life cycle.

For a young individual with a keen interest in building a large asset base to supplement pension income for retirement, a stocks and shares ISA could be a good option, and with a long-time horizon, short-term volatility is less likely to be an issue. This approach could see better returns over the long-term when compared to cash returns over the same time horizon. 

However, those with their eye on retirement in the near future, will most likely want to take a lower risk approach than a stocks and shares ISA. Here, a cash ISA might be a more suitable option to minimise exposure to market volatility and any short-term losses. 

Having multiple ISAs working in cohesion with one another may be an optimal solution for a number of individuals. A young family for example, might want to set up a junior ISA for their children to help save for their future. Alongside this, they may want to subscribe to a lifetime ISA if they are looking to purchase their first property. Care should be taken when assessing the suitability of a lifetime ISA;. although the 25% government bonus is appealing, if you decided to not use the funds for your first house purchase, there is restrictive access until age 60, as well as limits on the value of the property that the ISA can be used for.

Do I have the wrong ISA?

It’s important to ask yourself this question and think to yourself, do I have the right ISA for me? You will need to assess your own personal short- and long-term goals; whether you want to save for the future or set aside some money to use in the short term, in a tax- efficient environment. Some rules can be restrictive and falling foul of the rules could cost you.

Having the wrong type of ISA for your objectives can make them ineffective. Although they appear to be simple wrappers, it is recommended to seek advice from professionals who have the expertise in this area, to help guide you through your overall financial plan.

If you’d like to learn more about how ISA can work within your financial plan, why not get in touch. We’re currently offering those with £100,000 or more savings, investment or pensions a free financial review worth £500.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

Investment returns are not guaranteed, and you may get back less than you originally invested. The Financial Conduct Authority (FCA) does not regulate cash or tax advice.

There have been two key announcements last week. The Bank of England held the latest Monetary Policy Committee (MPC) meeting and voted to keep the base rate at 5.25%, as was widely anticipated.

The day before, the Consumer Prices Index (CPI) measure of inflation was announced - 3.4% in the 12 months to February, down from 4% in January. This was lower than expected, and at its lowest level since September 2021 when it was 3.1%. Of course, as we have to keep reminding ourselves, this doesn’t mean that prices are falling, it simply means that the cost of things are rising a little more slowly. Certainly a lot slower than in October 2022, when CPI inflation hit 11.1% - the highest level in 41 years.

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That said, depending on your lifestyle, there may actually be some items that are in your inflation basket that have fallen in price. For example, although the rising cost of bread has slowed from 2.1% in January to 1% in February, which means the price is still rising a little, the price of butter and jam has been falling! And with the price of milk falling too, it looks like breakfast is a pretty inflation busting meal right now!

The main downward drivers of CPI have been an ongoing slowdown in the rising cost of food and restaurants & cafes – the latter helped by a slowdown in the prices of some alcoholic drinks such as gin and whiskey.

Motorists are also seeing cheaper prices at the pumps, as the average price of petrol rose by 2.3p per litre between January and February 2024 to stand at 142.2p per litre, but down from 148p per litre in February 2023.

Diesel prices rose by 3p in February to stand at 151.3p, but down from 169.5p in February last year.

The ONS stated: “These movements resulted in overall motor fuel prices falling by 6.5% in the year to February 2024, compared with a fall of 9.2% in the year to January”.

Core inflation, which excludes the more volatile energy, food, alcohol and tobacco, rose by 4.5% in the 12 months to February 2024. But this is down from 5.1% in January.

Of course, lower inflation means that once more there is greater expectation for the base rate to be cut and traders are now pricing in a 63% probability of a 0.25% rate cut in June. However, the Bank of England has indicated that it cannot start cutting rates yet, given stubbornly sticky growth in services' prices and wages, warning of the possibility of inflation remaining higher for longer.

What should savers do?

The good news is that whilst it feels like savings rates may have peaked recently, the top rates available have been pretty stable. So, this combination of stable savings rates with a drop in inflation means that there are many accounts available that are paying an interest rate that is higher than the current level of inflation, even if you now pay tax on your savings interest.

The top easy access account is paying a gross rate of 5.10% at the moment. After the deduction of 20% tax, the rate falls to 4.08%, but that rate still beats the CPI level of inflation which has fallen to 3.4%. Of course, that rate is variable, so could well start to drop once the base rate does, so if you can afford to tie some cash up, now could be a good time.

The top 1-year bond is paying 5.26% - which is 4.21% after 20% tax. And although longer term bonds are paying less, this is a clear indication that the market expects rates to start to fall soon, so locking in now for longer at a lower rate could see you earning more in the long run – and if inflation continues to fall, you could hedge against inflation for the duration. The top 5-year bond is paying 4.55%, which is 3.64% after 20% tax – still higher than CPI.

And, don’t forget that there is a £20,000 ISA allowance, which can shelter your savings from the taxman. The top easy access ISA account is paying 5.15% tax free/AER with app-only and new provider, plum, whilst the top paying 1-year cash ISA is paying 5.09% with Castle Trust. There is also the Virgin Money 1 Year Fixed Rate Cash ISA Exclusive Issue 11 which is paying 5.25% but you need to hold or open a current account with Virgin to be eligible – although you don’t need to switch current account or set up any direct debits. The top 5-year ISA is with UBL paying 4.16% tax-free.

Of course there are still a number of accounts that are paying less than inflation. Whilst closed to new business, the Virgin Money Access Saver account is still paying just 0.25%. And Barclays live Everyday Saver account is paying between 1.16% to 1.66% AER – the latter applying to the first £10,000 deposited only.

If you have £10,000 in an account earning 0.25%, with inflation at the current level of 3.4%, after one year, although the total balance including accrued interest would be £10,025, the real value after the effect of inflation would have reduced your spending power to £9,695. However, if you picked the top paying easy access ISA paying 5.15% tax free/AER, not only would the total balance have increased to £10,515 after a year, but more importantly the real value would have grown too – giving you spending power of £10,169, so more than keeping up with inflation.

This illustrates just how important it is to pick the top paying accounts. So keep a close eye on best buy tables. 

Take a look at our inflation calculator below, to see how your savings accounts are faring against inflation.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax advice. 

The accounts and rates mentioned in this article are accurate and correct as the time of writing 22/03/2024.

Firstly, the Chancellor announced that a new British Savings Bond will be delivered through NS&I, (National Savings & Investments) which will be launched in April this year.

What this actually means is that NS&I will be re-issuing its 3-year Guaranteed Income and Guaranteed Growth Bonds offering savers a chance to deposit between £500 and £1million, whilst keeping the lot protected, as all deposits made with NS&I are guaranteed by the Treasury.

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The biggest news was from NS&I

The rate has not yet been released but NS&I has already announced that it will be ‘priced mid-market’ so it’s unlikely to be very exciting.

NS&I’s net financing target for the new tax year has also been announced and it’s been increased from the current level of £7.5 billion, to £9 billion.

This target is the amount that the Treasury-backed savings provider has been tasked with raising for the Government. Whilst an increase would normally be good news for savers, as it would ordinarily indicate that NS&I may need to raise savings rates in order to raise more money, the possible fly in the ointment this time is that the forecasted net amount raised for the current tax year is expected to be £10.9 billion – far above the target of £7.5 billion. So, NS&I is already awash with cash, which could mean more cuts rather than any increases any time soon. We’ll have to wait and see.

Allowances frozen

The Personal Savings Allowance (PSA) has remained the same since it was introduced in April 2016 – giving basic rate taxpayers £1,000 of tax-free interest per year and higher rate taxpayers £500. While this appeared pretty generous when it was launched, as savings rates have increased the PSA is being used up with less and less cash on deposit. In April 2016 the top paying easy access account was paying 1.45%, so you would have needed a deposit of £68,966 to breach the £1,000 PSA (assuming you held no other savings accounts). Today, if you were to open the top easy access account paying 5.11%, a deposit of just £19,570 would earn more than £1,000 in gross interest.

This is why cash ISAs have become so important once again – savers can earn tax free interest, regardless of the amount.

Which is why it’s so disappointing that the cash ISA allowance has also remained frozen. The Chancellor announced a new British ISA allowance – so an extra £5,000 can be sheltered from tax, but this is only for those happy to put money into British investments – it’s not an extra allowance for cash savers.

The Junior ISA allowance will also remain at £9,000 and there will be no increase to the Lifetime ISA limit, which is £4,000. Added to that, it’s disappointing that the 25% penalty charge for a withdrawal before the age of 60 for anything other than buying your first home has not been reduced, as was widely expected. And there has been no change to the upper value of the property that can be purchased – it will remain at £450,000.

The 'starting rate' for savings has been frozen again too at £5,000. This allows those earning less than £17,570 from employment or pension, to earn up to £5,000 in savings interest before paying any tax on it. This is in addition to the Personal Savings Allowance.

According to the Budget documents, the freeze in just the starting rate for savings should earn the Treasury £95m by 2029!

While it’s disappointing that Jeremy Hunt has failed to help savers to keep more of the interest they are earning on their savings, this doesn’t mean that you can’t put more pounds in your pockets. There is still good competition in the savings market, so keep an eye on our best buy tables to make sure you are earning as much interest as possible.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice. 

Crumpets or Croissants – what’s in your inflation basket?

The Chancellor, Jeremy Hunt, stated in his recent Budget speech that inflation is expected to fall below the 2% target in just a few months' time, according to figures from the Office for Budget Responsibility (OBR). Whilst politicians are patting themselves on the back for their perceived part in bringing costs down, I’m sure many people are still well aware we continue to live in a cost of living crisis and while inflation is coming down, this simply means that prices are rising at a slower rate, but they are still rising. The speed at which prices have risen on everyday items is hard to comprehend, but it’s not just the UK that is feeling the pain.

But what is really affecting inflation and how is it measured? How does the UK measure up against other economies,  how does our basket of goods compare, and most importantly what does this all mean for you and your financial future.

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What is inflation? 

The release of January’s CPI inflation figures by the Office for National Statistics (ONS) showed that inflation in the UK held steady at 4%, the same rate as in December but below the Bank of England (BoE) and analysts' predictions.

Figure 1 - UK CPI Inflation from January 2021 – January 2024, Source: Office for National Statistics

This marked the 30th consecutive month of inflation being above the 2% target set by the Bank of England, dating back to August 2021. The good news here is that inflation has been steadily falling from the 11.1% high in October 2022, despite the 0.1% rise in December from 3.9% to 4%. 

With rising inflation set to continue to impact our lives, it’s worth reminding ourselves about what inflation means and how it is measured. After the last few years, we are all aware of the fact that inflation is the periodic rise in the price of goods and services. But how is this measured to allow the Office for National Statistics (ONS) to come up with a figure each month?

Measuring inflation in the UK

Inflation is measured using price indexes: these do vary in the way they measure prices and what they include but the basics always stay the same. These indexes take a defined basket of goods and services and tracks the changes in the price of each item. Each item's price change is then weighted in relation to the share of total household consumption, to create an average figure that is representative of consumer spending within the economy.

The UK uses three main price indexes, the Retail Price Index (RPI), the Consumer Price Index (CPI) and the Consumer Price Index plus owner-occupiers’ housing costs (CPIH). The main focus is on  CPI, a monthly figure calculated by the ONS. This figure does not just hold importance as a way of showing how prices in the UK are changing but is also a measure used by the Government, which links its spending on areas such as state benefits to the figure.

The basket of goods

The basket of goods and services used to measure CPI is made up of over 700 products and is reviewed annually to ensure the measure remains representative of consumer spending. The recent review on March 11 2024, the ONS added 16 items including air fryers, vinyl music, gluten free bread, and edible sunflower seeds. While hand hygiene gel, hot rotisserie cooked chicken, and bakeware were among the 15 items that were removed. With the next review not due until March next year, it will be interesting to see how consumer spending over the next twelve months will affect what items are added and what items are taken away.

Now we have the basket of goods and services, it is the job of local price collectors to visit around 20,000 shops across the country, collecting pricing information. This is done to ensure regional price variations are included in the measure. They visit the same shops and collect information on identical products each month, while the information for larger chain stores is collected using central pricing policies.

The last step in the creation of the CPI figure is to compare the changes in price for each item in the basket, to those collected twelve months ago, to see how the price has changed over the previous year. Each price change is then weighted, taking into account the amount of household spending on the product before being added together to create the final inflation figure for the month.

How is inflation measured around the world? 

Inflation is measured in slightly different ways around the world. Price indexes (such as the CPI) are used by different nations. However, the composition, weighting and size of the basket of goods and services varies from country to country to ensure it is representative of the economy which it is measuring inflation for.  This provides an insight into how different countries and cultures spend their earnings.

In the UK for example, the basket of goods and services includes Yorkshire puddings, crumpets and fake tan. Items which I am sure may be less popular in France who include fresh scallops, vintage Champagne and butter croissants in their basket of goods and services. The basket used in Italy has over 1,700 items and differentiates between what it defines as “table” and “quality” wine in its calculation.

The United States record the change in price of around 80,000 products each month in their basket of goods, giving them space to include items such as cookies and fresh cupcakes in their inflation measure as well as canned ham. 

Finally in New Zealand, the basket also consists of around 700 items taking into account their outdoor lifestyle by including surfboards, fishing rods and women’s jandals, a local term for what we would call flip flops.

How does the UK inflation compare to the rest of the world

Around the world, inflation is continuing to sit above the targets set by many nations' central banks. Figure 2, below, shows the January inflation figures for G20 countries which were released at the time of writing, taking out the anomaly of Turkey and Argentina who reported inflation of 64.9% and 254.2% in January. It may be of some comfort to know that most major economies across the world are sitting in the same camp as the UK. That is with the  exception of China who are currently facing deflation, a decline in the prices levels of goods and services, due to a slowdown in their economy.

Figure 2 - Euro Area Inflation Rate - January inflation rate 2024, Source: Trading Economics

However, below shows the inflation forecast by the OECD for G7 nations in 2024 and 2025. They are predicting that the UK is set to have the highest inflation out of the G7 nations in both 2024 and 2025. This contradicts the OBR’s expectations, and highlights that the UK could face higher prices for slightly longer than other global economies.

Figure 3 - OECD forecast for inflation level in 2024 and 2025 of the G7 nations, Source: OECD

What this means for your finances and future seems clear at this point, prices will continue to increase, albeit at a slower pace. If we’re to believe the OBR then we may be in for less pain in the coming months. If we’re to believe the OECD then it may take some time to get there, and we may lag behind other G7 nations. If you’d like to discuss how inflation may affect your financial future why not get in touch and speak to one of our experts. We’re offering everyone with £100,000 or more in savings, investments or pensions a free financial review worth £500, so why not get in touch today.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Spring Budget 2024 confirmed some rumours, such as the introduction of a British ISA, and at the same time, contained a few surprises too. 

The main points are summarised below along with a reminder of some of the other changes coming into effect in April 2024.

Some measures are potentially subject to change until enacted into legislation.

If you have any questions or would like to speak to one of our expert financial advisers about the changes announced, contact us to arrange a free initial consultation.

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Pensions

Abolition of Lifetime Allowance (LTA) from 6 April 2024

A further Pension Schemes Newsletter / Lifetime Allowance Guidance Newsletter is expected this week but no further detail was issued as part of the Budget itself. Further information will be issued once it’s available.

State pension

Triple lock means new state pension and basic state pension will increase by 8.5% in April 2024. Full new state pension figure will be £221.20 per week.

Investments

Individual Savings Accounts (ISA)

The annual subscription limits all remain at their current levels in 2024/25, i.e.

• £20,000 ISA
• £4,000 Lifetime ISA
• £9,000 Junior ISA (and Child Trust Fund)

A new British ISA is to be introduced from a date to be confirmed. This will give investors an additional £5,000 ISA allowance each tax year, so on top of the current £20,000. There is a consultation paper in place to obtain feedback from ISA managers, but the idea is for allowable investments to include UK equites and potentially UK corporate bonds, gilts, collectives. 

As previously announced at the Autumn Statement, the government is to make changes to ISAs to simplify the scheme and widen the scope of investments that can be included in ISAs. To simplify the scheme the government will:

• Allow multiple subscriptions in each year to ISAs of the same type, from 6 April 2024
• Remove the requirement to make a fresh ISA application where an existing ISA account has received no subscription in the previous tax year, from 6 April 2024
• Allow partial transfers of current year ISA subscriptions between providers, from 6 April 2024
• Harmonise the account opening age for any adult ISAs to 18, from 6 April 2024
• Digitise the ISA reporting system to enable the development of digital tools to support investors

Reserved Investor Fund

The Reserved Investor Fund is a new type of investment fund designed to complement and enhance the UK’s existing funds rule. This meets the industry demand for a UK-based unauthorised contractual scheme, with lower costs and more flexibility than the existing authorised contractual scheme. The introduction date is still to be confirmed. 

Taxation

Income tax

All income tax rates and bands remain at their current levels in 2024/25. See our latest tax tables 2024/25.  

National insurance (NI)

National Insurance is paid by people between age 16 and State Pension age who are either an employee earning more than £242 per week from one job or self-employed and making a profit of more than £12,570 a year.

Following on from the NI cuts made in the Autumn Statement when the 12% rate of employee NI reduced to 10% from January 2024, the government is cutting the main rate of employee NI by 2p from 10% to 8% from 6 April 2024.

They are also cutting a further 2p from the main rate of self-employed National Insurance on top of the 1p cut announced at Autumn Statement and the abolition of Class 2.

This means that from 6 April 2024 the main rate of Class 4 NICs for the self-employed will now be reduced from 9% to 6%.

Child Benefit charge

The adjusted net income threshold for the High Income Child Benefit Charge (HICBC) will increase from £50,000 to £60,000, from 6 April 2024.

For individuals with income above £80,000, the amount of the tax charge will equal the amount of the Child Benefit payment. For those with income between £60,000 and £80,000, the rate at which HICBC is charged is halved, and will equal one per cent for every £200 of income that exceeds £60,000.

New claims to Child Benefit are automatically backdated by three months, or to the child’s date of birth (whichever is later). For Child Benefit claims made after 6 April 2024, backdated payments will be treated for HICBC purposes as if the entitlement fell in the 2024/25 tax year if the backdating would otherwise create a HICBC liability in the 2023/24 tax year.

In his Budget speech, the Chancellor announced that the plan is to move assessment for the HICBC to a system based on household income from April 2026. This is to remove the current unfairness meaning that a couple who each have income below the threshold, so could in 2023/24 have £49,000 pa each (£98,000 pa in total), wouldn’t be subject to the HICBC whereas another household with one person with income of £51,000 for example would.

Dividend allowance

As we are already aware, the dividend allowance reduces from £1,000 to £500 on 6 April 2024. Dividend tax rates remain the same at 8.75% in basic rate band, 33.75% in higher rate band and 39.35% in additional rate band (and 39.35% for discretionary trusts).

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Capital gains tax (CGT)

Annual exemption reduces from £6,000 to £3,000 on 6 April 2024 (a maximum of £1,500 for discretionary/interest in possession trusts – shared between all settlor’s trusts subject to a minimum of £600 per trust).

CGT rates remain as they currently are apart from the higher CGT rate for residential property gains (the lower rate remains at 18%):

• 10% for any taxable gain that doesn’t fall above the basic rate band when added to income and 20% on any gain (or part of gain) that falls above the basic rate band when added to income
• For residential property gains these rates increase to 18% and 24% (formerly 28%) respectively
• Discretionary/interest in possession trustees and personal representatives pay at the higher rates (20%/24% (formerly 28%))

Simplifications for trusts and estates

From April 2024 trustees and personal representatives of estates will no longer have to report small amounts of income tax to HMRC and taxation of estate beneficiaries will be simplified, as shown below:

• Trusts and estates with income up to £500 will not pay tax on that income as it arises
• The £1,000 standard rate band (effectively basic rate band) for discretionary trusts will no longer apply
• Beneficiaries of UK estates will not pay tax on income distributed to them that is within the £500 limit for the personal representatives

Stamp duty land tax (SDLT)

SDLT Multiple Dwellings Relief is being abolished from 1 June 2024. This applies to purchasers of residential property in England and Northern Ireland who acquire more than one dwelling in a single transaction or linked transactions. 

Changes to the taxation of non-doms

The concept of domicile is outdated and incentivises individuals to keep income and gains offshore. The government is therefore modernising the tax system by ending the current rules for non-UK domiciled individuals, or non-doms, from April 2025. A new residence-based regime will take effect from April 2025.

From April 2025, new arrivals, who have a period of 10 years’ consecutive non-residence, will have full tax relief for a 4-year period of subsequent UK tax residence on foreign income and gains (FIG) arising during this 4-year period, during which time this money can be brought to the UK without an additional tax charge.

Existing tax residents, who have been tax resident for fewer than 4 tax years and are eligible for the scheme, will also benefit from the relief until the end of their 4th year of tax residence.

Liability to inheritance tax (IHT) also depends on domicile status and location of assets. Under the current regime, no inheritance tax is due on non-UK assets of non-doms until they have been UK resident for 15 out of the past 20 tax years. The government will consult on the best way to move IHT to a residence-based regime. To provide certainty to affected taxpayers, the treatment of non-UK assets settled into a trust by a non-UK domiciled settlor prior to April 2025 will not change, so these will not be within the scope of the UK IHT regime. Decisions have not yet been taken on the detailed operation of the new system, and the government intends to consult on this in due course.

Furnished holiday lets (FHL)

The FHL tax regime, which relates to short-term rental properties, is to be abolished from April 2025.

Currently, if an individual lets properties that qualify as FHLs:

• The profits count as earnings for pension purposes
• They can claim Capital Gains Tax reliefs for traders (Business Asset Rollover Relief, relief for gifts of business assets and relief for loans to traders)
• They’re entitled to plant and machinery capital allowances for items such as furniture, equipment and fixtures

Raising standards in the tax advice market

A consultation has been issued to discuss the government’s intention to raise standards in the tax advice market through a strengthened regulatory framework. It sets out three possible approaches to strengthening the framework: mandatory membership of a recognised professional body, joint HM Revenue and Customs (HMRC) – industry enforcement, and regulation by a separate statutory government body. The consultation also explores approaches to strengthen the controls on access to HMRC’s services for tax practitioners.

This has relevance to anyone who may receive or provide tax advice or offers services to third parties to assist compliance
with HMRC requirements. For example, accountants, tax advisers, legal professionals, payroll professionals, bookkeepers, insolvency practitioners, financial advisers, customs intermediaries, charities and other voluntary organisations that help people with their tax affairs, software providers, employment agencies, umbrella companies and other intermediaries who arrange for the provision of workers to those who pay for their services, people who engage workers off-payroll, promoters, enablers and facilitators of tax avoidance schemes, professional and regulatory bodies, and clients, or potential clients, of all those listed above.

The consultation runs until 29 May 2024. 

VAT

The VAT threshold is increasing from £85,000 to £90,000 from 1 April 2024, the first increase in seven years. See our tax tables 2024/25 for more details. See our tax tables 2024/25 for more details.

If you’d like to discuss any of the changes announced in the Budget or would simply like to explore ways that you can minimise the amount of tax you pay on your wealth, why not get in touch and speak to one of our expert team of advisers. We’re offering anyone with £100,000 in savings, investments or pensions a free financial review worth £500.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax advice.

Hunt’s politically charged budget gives the voting public a second National Insurance cut in six months, but will it be enough to save the Tory party in the upcoming General Election?

Chancellor Jeremy Hunt delivered what could be his last Spring Budget (on 6 March 2024), with a further 2% National Insurance cut making the headlines, but there were other measures introduced which could have an impact on your finances.  So, what was announced?

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National Insurance

Following the 2% National Insurance reduction announced in the Autumn Statement last November, a further 2% National Insurance reduction was announced.  This will again affect earnings between £12,570 and £50,270 p.a. and will take effect in April 2024 in the pre-election giveaway that was widely anticipated following speculation in the press.  This will save workers up to a further £753 p.a., on top of the up to £753 p.a. saving as a result of the reduction announced in the Autumn Statement.

Child Benefit

It was announced that the High Income Child Benefit Charge (HICBC) will be replaced by a household income based system in April 2026 following a consultation.  In the meantime, from April 2024 the threshold above which the HICBC starts to apply on a tapered basis will increase from £50,000 to £60,000 and the top of the taper will increase from £60,000 to £80,000 in a move that Mr Hunt will hope will please working families.

Savings/Investments

Following speculation prior to the Autumn Statement, a British ISA was announced. This will be a further £5,000 tax free ISA allowance for investments into British companies, which will be available in addition to the standard £20,000 ISA allowance.

A new British Savings Bond will also be made available through National Savings and Investments (NS&I), which will offer a fixed rate over three years, though the rate payable has not been announced.

Pensions

Regarding the lifetime allowance, currently 0% and due to be scrapped in April 2024, there were no further changes announced. However, Mr Hunt did not miss the opportunity to reference Labour’s plans to reintroduce the allowance, stating “Ask any Doctor what they think about Labour’s plans to bring it back, and they will say “don’t go back to square one'.”

There were also new rules announced requiring Defined Contribution and Local Government pension funds to disclose how much UK equity exposure they have relative to their international equity exposure.  This could prove controversial given the funds’ mandates will be to produce the best risk adjusted return they can for investors, irrespective of their asset allocation.

Property

It was announced that higher rate Capital Gains Tax (CGT) rates on property sales will be reduced from 28% to 24% in April 2024, in a move that the government claims will be revenue generating.  The Furnished Holiday Lettings (FHLs) regime will also be abolished. 

‘Non-doms’

The current ‘non-dom’ rules, a tax advantageous regime for those who are non-UK domiciled (their ‘permanent home’ is outside the UK), will be replaced by a residency based system from 2025.

Inheritance Tax

After strong rumours that Inheritance Tax would be scrapped before last year’s Autumn Statement, it was not mentioned in the Chancellor’s budget statement.

Conclusion

In what was always going to be a politically charged speech given the proximity to the general election, Chancellor Jeremy Hunt will hope he has done enough to convince voters to give the Conservative Party another term in office in his Spring Budget.  In what the Labour Party leader Keir Starmer described as a ‘Last Desperate Act’; the speech was filled with warnings about the potential implications of a future Labour government (the budget speech transcript on the gov.uk website has ‘political content removed’ 27 times!).  

However, workers, families, those selling second homes and those already benefitting from last year’s Lifetime Allowance changes may see themselves as in a better position than they were previously, and they could see a future Labour Government as a risk to the longevity of the recently announced changes.  

If this is to be the case, there could be a limited opportunity to plan over the next few months.  So now is the time to seek advice, to make sure you are doing all you can to protect you and your family’s wealth. If you'd like to learn more about how you can minimise the amount of tax you pay on your wealth, why not get in touch and speak to one of our experts for a free initial consultation or please speak to your adviser if you would like to discuss any of the changes detailed above.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The opinions shared in this article are solely those of the individual and they do not necessarily reflect those of The Private Office.

The Financial Conduct Authority (FCA) does not regulate tax advice.

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