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The compounding effect: How it could boost or harm your finances

When a 1920s ad referred to compound interest as “the eighth wonder of the world”, the quote was left unattributed. But that didn’t stop it from becoming synonymous with the celebrated physicist, Albert Einstein.

The link was likely intended to lend credibility to a statement that at first glance seems bold. And yet, compounding could be key to the success of your long-term financial plans.

As Einstein did or didn’t say, “He who understands it, earns it, he who doesn’t, pays it.” Whoever did say this, knew what they were talking about.

The compounding effect – essentially growth on growth that snowballs over time – can have an enormous impact on your finances. It can significantly increase the size of your savings and investments in the long term but, if not carefully managed and understood, it can also work against you.

This handy guide clearly explains how compounding works, and provides examples of how it might boost or harm your financial circumstances.

Download your copy here: The compounding effect: How it could boost or harm your financesto find out why compounding may be an essential part of your long-term financial plan.

Please get in touch if you’d like to speak to one of our team about how we could work with you.

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate cashflow planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Team update – Adrian’s triathlon triumph and a fun team trip to Barcelona

We have plenty to update you on this month – the Blue Wealth team has been busy!

Also, if you fancy a summer boat trip on The Matthew, Bristol’s historic floating harbour, this July, remember to book your place by emailing your adviser.

Adrian did himself proud in the First Tri Lydney Olympic triathlon

After months of dedicated training, Adrian successfully completed this challenging event in the beautiful Forest of Dean on Sunday 27 April.

The triathlon included:

  • A 750-metre pool-based swim – According to Adrian, “There were five lanes with four swimmers in each lane, starting in waves. So, it felt a bit like being in a washing machine!”
  • A 43-kilometre cycle – “The course was excellent, with 1,821 feet of ascent over 24 miles.”
  • A 10-kilometre run – “A two-lap run around a very attractive and varied course in Lydney.”

Lydney cycling route

Lydney running route

Adrian completed the race in 2 hours and 47 minutes (and 8 seconds, if you’re counting), and placed 53rd out of 94 entrants. Pretty impressive, especially as he was the 5th oldest competitor!

He certainly earned his medal.

When asked about the key highlights and challenges of the day, Adrian said, “The weather was excellent, the race organisation was first class, and I loved the camaraderie between the competitors.

“I felt a real sense of achievement having completed my first triathlon in 15 years.”

The swim was Adrian’s biggest challenge as he has always felt stronger cycling and running. He also struggled to maintain his blood sugar levels during the bike ride, but thankfully, a stash of Jelly Babies saved the day.

Demonstrating a true runner’s mindset, Adrian managed to keep going despite his right calf tightening midway through the course.

Overall, the event was a huge success. “It was an absolute joy to be back doing something that I have always loved and had been away from for far too long.

“Also, three months of training have had such a positive impact on my health and fitness. It shows that at nearly 60, there’s life in the old dog yet!”

Adrian is already planning his next fitness challenge. He’ll be donning his trainers for the Clevedon 10K run on Wednesday 10 June, before tackling the Trimax Cromhall Evening Tri Series of midweek sprint triathlons between June and September.

Our financial planners enjoyed a short trip to Barcelona

Adrian, Dan, Rob, and Nathan took a city break to Barcelona in Spain, from 23 to 25 April, in celebration of the company’s ongoing success.

On arrival, the team were surprised to find the city filled with people exchanging books and roses.

In Barcelona, 23 April is Sant Jordi or Saint George’s Day, which is a major cultural festival in Catalonia. It’s a day dedicated to love, so, traditionally, couples and loved ones give each other gifts of books and roses.

The streets were lined with stalls selling these items, and many of the central roads were closed due to the large crowds that gathered.

Dan said, “It was really busy, but also beautiful with lots of roses everywhere.”

On the first day, the group enjoyed wandering around the city and sampling the different tapas being sold in the local bars.

On the second day, they explored the Sagrada Familia, the largest unfinished Catholic church in the world, which was designed by the famous architect and designer, Antoni Gaudi. The team also enjoyed a leisurely stroll through Gaudi’s Park Güell.

The group also squeezed in a trip to Camp Nou (the biggest stadium in Europe), which included a tour of the FC Barcelona Museum.

Rob said, “As avid football fans, it was fantastic to see the club’s historic memorabilia and most celebrated trophies up close.”

How did they end this busy day of sightseeing? With more tapas, of course!

On the final day, the team went on a two-hour scooter tour of the medieval city, beaches, and Olympic Village (La Vila Olimpica del Poblenou).

Nathan said, “It was a brilliant trip. We packed so much into a few days, and it was great to spend time together outside the office.”

Adrian added, “I’d definitely go back to Barcelona. There’s so much to see and do, and the weather was gorgeous.”

Get in touch

If you’d like to find out more about getting involved with the July boat trip, we’d love to hear from you.

And as always, if you have any questions about Blue Wealth and how we can support you with all your financial planning needs, please get in touch.

Please email hello@bluewealth.co.uk or call us on 0117 332 0230.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

All information is correct at the time of writing and is subject to change in the future.

4 money lessons to boost your children and grandchildren’s financial independence

Introducing children to money matters from a young age could help them build the financial independence they need to achieve their goals as they get older.

Yet, a survey by the Money & Pensions Service has revealed that 3 in 4 UK teachers believe that most young people leave education without the financial skills they need.

So, as a parent or grandparent, you could play a key role in teaching the young people in your family how to manage their money responsibly.

My Money Week, which runs from 9 to 13 June, aims to get young people aged 3 – 19 excited and interested in financial matters.

So, it’s the perfect time to build your child or grandchild’s financial knowledge. Here are four important money lessons to get you started.

1. Understanding where money comes from and recognising its value

Learning the value of money and where it comes from is an important stepping stone for gaining more advanced financial knowledge and skills.

Children as young as three or four years old can learn to recognise the value of different coins and notes, hand over money in shops, and start using a piggy bank.

As they get older, one of the most fundamental money lessons to teach your children or grandchildren is that money isn’t an unlimited resource that is magically dispensed from cash machines or accessed from their phones.

With the rise of high-earning influencers and a growing societal focus on building wealth through passive income, children might not appreciate the connection between work and reward.

You can demonstrate this link by giving them opportunities to earn money, such as by doing chores around the house or encouraging them to find a weekend job once they’re old enough.

2. Setting and sticking to a realistic budget

Once your child or grandchild appreciates that money is usually earned by work or effort and that everyone must live within their means – no matter what their financial situation is – you can teach them how to budget.

From around the age of seven or eight, most children can grasp the difference between “needs” and “wants”. They might want those sweets or a new toy, but they need shelter and clothes.

Try giving them envelopes or jars that they can decorate and mark as “needs” and “wants”. Then, ask them to divide their pocket money as they see fit. This is a great way to foster financial independence and responsibility.

Older children might enjoy using budgeting apps or getting involved with managing the finances for a family occasion or holiday.

Encourage your children and grandchildren to set short- and long-term goals, possibly with mini-milestones along the way. Knowing that there is a reward not far ahead could help keep them motivated to stick to their budget.

3. Avoiding expensive or unnecessary debt

According to data published by the debt charity StepChange, the average unsecured debt amount for each individual who sought their help rose from £14,654 in 2023 to £15,672 in 2024. This equates to a £1,018 (7%) increase.

High levels of debt can have wide-ranging effects on a person’s life, such as:

  • Diminishing mental health and wellbeing
  • Restricting life choices in both the short and long term
  • Increasing the risk of defaulting on loans or needing to take on more debt.

Of course, borrowing money is sometimes a necessary part of life. For example, young people might need to take out a mortgage to buy their first home.

That’s why it’s crucial to teach your children and grandchildren:

  • How credit works – It’s not “free money” as the loan will usually need to be repaid, and there is likely to be interest added on top.
  • The different types of credit available – Such as credit cards, mortgages, and student loans.
  • How to tell the difference between “good” and “bad” debt – Looking at factors such as the interest rate and the effect on their credit score (positive or negative).

Learning how to use borrowing sensibly could help young people make informed financial decisions.

4. Staying safe when managing finances online

Figures released by Finder reveal that in 2025, 87% of UK adults use some form of online or remote banking.

While digital platforms can make managing money extremely convenient and efficient, individuals who aren’t vigilant could be vulnerable to financial fraud and scams.

The Financial Ombudsman Service reported that fraud and scam complaints hit their highest level between April and June 2024. More than 8,700 cases were filed and over half of those related to online bank transfers.

So, teaching your children and grandchildren how to keep their money safe online is vital. You could do this by:

  • Sharing real-life examples of financial scams and highlighting the red flags to look for
  • Emphasising the importance of not sharing passwords, PINs, or bank details
  • Explaining the risks of sharing personal information on social media
  • Encouraging them to regularly monitor their accounts and transactions
  • Fostering open communication about money and financial concerns.

Get in touch

If you’d like to find out how we can work with you and your family to support all your financial planning needs, we’d love to hear from you.

Please email hello@bluewealth.co.uk or call us on 0117 332 0230.

Please note

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.

Blue Wealth Ltd is not responsible for the accuracy of the information contained within linked sites.

Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd, which is authorised and regulated by the Financial Conduct Authority.

Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

Approved by Best Practice IFA Group: 20/05/25

Guide: How financial planning could help you answer essential “what if?” questions

Financial planning is all about helping you to reach your life goals. Ultimately, the objective is for your wealth to allow you to achieve all the things you want to do now and in the future.

That might be as simple as being able to relax and enjoy a comfortable retirement or helping your children through education or onto the property ladder. Alternatively, you may want to start a business, retire abroad, or leave a legacy to causes you care about.

When making a financial plan, you could be looking several decades ahead. During that time, a variety of unknowns could crop up, altering your ability to meet your goals.

Unfortunately, there’s no such thing as a crystal ball. However, when it comes to your finances, cashflow planning could help you visualise how your wealth may fluctuate as you progress through life, and reveal answers to a variety of “what if” questions.

Find out more in this insightful guide, which covers:

  • How cashflow planning works
  • How cashflow planning could ease your financial concerns
  • Examples of when a cashflow model might help you forecast your financial future
  • The advantages and disadvantages of using a cashflow model as part of your financial plan.

Download your copy here: ‘How financial planning could help you answer essential “what if?” questions’ to find out how cashflow planning could help you answer questions, ease worries, and give you confidence in the future.

Please get in touch if you’d like to speak to one of our team about how we could work with you. 

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow planning.

How changing your perception of wealth could help you live happier, now and in retirement

Do you consider yourself wealthy? How about the man next door, or the woman over the road?

While we might see a neighbour with a fancy car and assume they’re rich, we don’t know anything about their underlying circumstances. It can be very easy to jump to conclusions about others’ “wealth” and often compare our own financial circumstances unfavourably.

In fact, according to an HSBC report, the UK has a “wealth perception gap”, with individuals in every wealth bracket consistently underestimating their earnings compared to others.

Keep reading to find out more.

High earners may not consider themselves wealthy as they compare themselves to others

In the report, ‘Your Money’s Worth: Defining Wealth in 2025’, findings reveal that the majority of those earning £100,000 a year don’t consider themselves affluent. The threshold for “wealthy” is actually perceived to be an annual salary of £213,000.

For comparison, according to the Office for National Statistics (ONS), this is more than six times the national average salary.

So, why is there such a big discrepancy between what we earn and what we consider to be wealthy? According to the report, the answer could be psychological. Key findings include that:

  • It’s very common for us to compare our finances unfavourably to those of others.
  • We can confuse big spending with affluence, not digging deeper into the fact these “wealthy” people may have got into debt to fund purchases.
  • People often start valuing non-material possessions when they realise material things didn’t buy them happiness.

Perceptions of wealth can become distorted over time, with higher earners often spending more on clothes, travel, homeware, and organic food than their average-earner counterparts. As these spending habits become routine, though, they are normalised. The expenditure might continue, but it’s no longer linked to a perception of affluence.

Younger generations increasingly see lifestyle and wellbeing as a symbol of wealth

The way we measure wealth today is shifting. Traditionally associated directly with income, there has been a significant move towards seeing lifestyle and wellbeing as better indicators.

This is particularly the case for younger demographics. Almost half (49%) of Gen Z view wealth in non-material terms, and a third of 18–24-year-old high earners believe that having a good work-life balance is a signifier of wealth.

Younger generations are also much more comfortable openly discussing their finances. Half of 18–24-year-olds said they like discussing money, compared with just 3% of over-55s.

Taking a leaf out of their books could help you find value outside of wealth creation, learn to openly discuss wealth and what it means to you, and shift your perceptions of what it is to be “wealthy”.

With this in mind, when do you stop wealth building and start looking at how to use your money, now and throughout retirement?

Shifting your perception from constantly amassing wealth to working out how to use it wisely can be more easily achieved by working with a financial planner.

3 ways a financial planner can help you change your perception of wealth to live a happier life

1. Introducing you to the concept of “enough”

“Enough” means something different to everyone. Realistically, you want to be able to pay your bills while funding your chosen lifestyle throughout your retirement.  A financial planner can help you devise a plan to support this and to manage your expectations.

Constantly chasing after wealth can start to become wearing, especially as you near retirement.

It’s about finding the balance between having “enough” without compromising on what you want out of life.

2. Helping you understand your position right now and looking at your aspirations for retirement

Where are you now? How do you live, and is there anything stopping you from doing the things you want to do? And when you retire, what are your plans? Travel, looking after grandchildren, moving abroad?

There’s not a one-size-fits-all answer, which means there’s not a one-size-fits-all solution. You could have a small pension pot and be perfectly happy staying at home and enjoying time with family.

Or, you might have an overflowing pension and still feel unfulfilled because you’re not spending enough time at home, or spending money in the “wrong” places. Once you’ve uncovered your own aspirations, you can plan accordingly.

3. Teaching you to focus on your financial goals without comparing yourself to others

As you can see from the report, wealth perception is subjective. All too often, you might find yourself looking to others’ material possessions as an indicator, comparing yourself unfavourably if you have a smaller house or older car, for example.

A financial planner will help you keep your focus on your own circumstances and goals, gently discouraging you from looking around you and instead guiding you along your own path.

Get in touch

Resolutely focusing on your own finances without getting sidetracked by what others have – or what you perceive they have – means shifting your mindset around what is “enough”.

We can help you work out what your goals are, now and in the long term, to help you understand how to achieve these aspirations.

Please email hello@bluewealth.co.uk or call us on 0117 332 0230.

Please note

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.

Blue Wealth Ltd is not responsible for the accuracy of the information contained within linked sites.

Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd, which is authorised and regulated by the Financial Conduct Authority.

Approved by Best Practice IFA Group: 28/4/25

Business owner? 3 important tasks to complete before the tax year ends

The tax year end on 5 April is rapidly approaching , so you have just a few weeks left to make the most of your tax allowances and exemptions for 2024/25.

What’s more, chancellor Rachel Reeves announced significant tax changes for business owners in her Autumn Statement last year, many of which come into effect from 6 April.

It’s important to understand how these new rules could affect your finances so that you can plan for the new tax year and beyond.

Read on to discover three important tasks to check off your to-do list if you want to keep your personal and business finances as tax-efficient as possible.

1. Make the most of your pension Annual Allowance

If you’ve ever uttered the words, “my business is my pension”, and paying into a separate scheme is low on your list of priorities, you’re not alone. According to This is Money, just 51% of business owners pay into a pension each month.

However, relying on your business to fund your retirement might be a risky strategy.

External factors could affect both the income your company generates and how much wealth you walk away with if you sell. For example, planned changes to Business Asset Disposal Relief (BADR) could mean that you incur a higher Capital Gains Tax (CGT) bill if you sell your company after 5 April (more on this later).

Alternatively, it might be difficult to access the funds you have tied up in your business when you retire.

That’s why paying into a pension and making the most of your Annual Allowance can provide valuable peace of mind.

Your Annual Allowance is the maximum amount you can contribute to your pension in a single tax year without facing an additional tax charge.

Most people can contribute up to £60,000 – the Annual Allowance for the 2024/25 tax year – or 100% of their earnings, whichever is lower.

Your Annual Allowance may be lower if your income exceeds certain thresholds or you have already flexibly accessed your pension.

Remember too that you can carry forward unused Annual Allowance from the previous three tax years. So, 5 April could be your last chance to make the most of any unused allowance from the 2021/22 tax year.

2. Prepare for changes to employer National Insurance rates

In her Autumn Budget, the chancellor announced that the rate of National Insurance (NI) you pay as an employer will increase by 1.2% from 6 April to 15%.

The threshold at which you start to pay NI will also be reduced from £9,100 to £5,000 a year from the start of the 2025/26 tax year. This threshold will remain frozen until 6 April 2028 and then increase in line with the Consumer Prices Index (CPI) thereafter.

While the Employment Allowance will increase from £5,000 to £10,500, and become available to all businesses from 6 April, changes to the NI rates for employers could have significant cost implications for your company.

As such, you might want to consider paying any planned bonuses before the April increase.

Additionally, switching to a “salary sacrifice” scheme could help you mitigate the effect of these changes. This means reducing your employees’ cash pay in exchange for a non-cash benefit, such as pension contributions.

The main benefit of salary sacrifice is that both you and your employees are likely to pay less NI, as the rate is calculated based on employees’ earnings. What’s more, your staff could see their take-home pay increase.

So, implementing such a scheme may make financial sense. There could be non-financial benefits too, such as boosting employee morale and helping you attract and retain talent.

3. Dispose of personal and business assets strategically

In the build up to the Autumn Budget, there was widespread speculation that CGT rates would be brought in line with Income Tax rates.

While the chancellor did not go quite this far, she did increase some CGT rates, which took effect immediately (from 30 October 2024).

CGT rose from 10% to 18% for basic-rate taxpayers, and from 20% to 24% for higher-rate taxpayers. There are no longer separate rates for residential property disposals.

Thankfully, the Annual Exempt Amount – which is the amount of profit you can make when you sell chargeable assets before CGT becomes payable – remains unchanged. It stands at £3,000 for the 2024/25 tax year.

So, if you’re planning to sell any of your assets, it might be worth doing so strategically. For example, you could spread sales over several tax years to avoid exceeding your Annual Exempt Amount. Alternatively, you might want to transfer assets to your spouse or civil partner to make use of their Annual Exempt Amount.

As mentioned previously, the chancellor also announced changes to BADR in her Budget.

If you’re eligible for BADR – which allows you to pay less CGT when you dispose of all or part of your business – the rate of CGT will rise from 10% to 14% from 6 April 2025, and to 18% from 6 April 2026.

As such, if you’re considering selling your business or shares in a business, you may want to do so before the new rates take effect.

Get in touch

Professional financial advice could play a key role in helping you manage your business and personal finances tax-efficiently.

If you’d like help preparing for the tax year end or planning for the year ahead, we’d love to hear from you.

Please email hello@bluewealth.co.uk or call us on 0117 332 0230.

Please note

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.

Blue Wealth Ltd is not responsible for the accuracy of the information contained within linked sites.

Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd, which is authorised and regulated by the Financial Conduct Authority.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Workplace pensions are regulated by The Pension Regulator.

Approved by Best Practice IFA Group 17/03/25

Guide: 7 allowances you might want to use before the end of the 2024/25 tax year

When a new tax year starts, many allowances reset. So, checking if you could use these valuable allowances before 5 April 2025, when the 2024/25 tax year ends, might help your money go further.

It’s important to understand which allowances fit into your financial plan and suit your goals. So, this guide could help you assess which allowances you might want to use before the current tax year ends.

The guide explains the:

  1. ISA allowance
  2. Junior ISA allowance
  3. Dividend Allowance
  4. Capital Gains Tax Annual Exempt Amount
  5. Marriage Allowance
  6. Pension Annual Allowance
  7. Inheritance Tax annual exemption

Download your copy here: 7 allowances you might want to use before the end of the 2024/25 tax year’ to find out more now.

If you have any questions about using allowances before the end of the tax year or managing your finances in the new 2025/26 tax year, please get in touch.

Team update

If you read our January update, you’ll know how much the Blue Wealth team enjoy spending time together outside the office.

After the roaring success of our Christmas party, we decided that our fantastic achievements in 2024 deserved a little more celebration. It was our best year in business so far, after all!

A unique dining experience in Bristol

On Friday 24 January, Blue Wealth staff and partners once again donned their finery (although no Great Gatsby costumes this time) and headed out for a night on the town in Bristol.

The event kicked off at 5.30 pm with pre-dinner drinks at Radius in Bristol. We then took our time enjoying a tasting menu of five courses, paired with incredible wines.

This was a truly unique and immersive private dining experience, with all produce sourced from local suppliers – including the venue’s own farm in Long Ashton.

We also loved that Radius prides itself on serving sustainable menus that showcase the very best the West Country and the rest of the UK have to offer.

It was a fantastic venue and an amazing evening – we’ll definitely return.

A celebration of a fantastic year

It’s fair to say that a merry time was had by all, yet there was an important reason behind our evening out.

We wanted to thank each and every member of the team for their contribution to Blue Wealth’s continued growth and success in 2024.

Last year was filled with outstanding achievements for the team and the business.

  • Blue Wealth was included in the NMA Top 100 list for the first time.
  • We moved to a new office, having outgrown our previous one.
  • Blue Wealth was shortlisted for Adviser Firm of the Year (South West and Wales) in the prestigious Professional Adviser
  • Rob Bowers and Adrian Thorley celebrated significant career anniversaries in August.
  • The team grew, with the addition of Deb (Rob’s wife) as a paraplanner.
  • We renewed the firm’s Chartered status – the gold standard of our profession.
  • Alongside our local charity partners, we raised important funds for worthy causes.

Not to mention weddings, holidays, fitness challenges and plenty more. We were also delighted to receive many heartwarming reviews and testimonials from our wonderful clients.

We think you’ll agree, there was plenty of cause for celebration!

Get in touch

If you’d like to find out more about the Blue Wealth team and learn how we can help you with your financial planning needs, we’d love to hear from you.

Please email hello@bluewealth.co.uk or call us on 0117 332 0230.

Please note

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.

Inheritance Tax and pensions: What the new rules could mean for your estate plan

On 30 October 2024, chancellor Rachel Reeves announced a number of tax changes as part of her Autumn Budget.

One of the most significant – at least in terms of estate planning – was the inclusion of unused pension funds and death benefits in a person’s estate for Inheritance Tax (IHT) purposes.

Indeed, PensionsAge has reported that more than 150,000 estates may be affected by this amendment to current rules.

While this change is not due to take effect until April 2027, it could have important implications for your pensions and estate plan. As such, it’s worth getting to grips with the new rules and potentially, reconsidering how you want to pass on your wealth to loved ones.

Keep reading to learn more.

Pensions currently offer a tax-efficient way to pass on your wealth to loved ones

Your beneficiaries may face an IHT bill when they inherit your wealth if the value of your estate exceeds the following thresholds:

  • £325,000 for most estates – This is your “nil-rate band”.
  • £175,000 when passing on a home to your children or grandchild – This is your “residence nil-rate band”. Your residence nil-rate band may be reduced if your estate exceeds £2 million in total.

The government has frozen these thresholds at current levels until 2030.

You could combine these two IHT-free thresholds and pass on up to £500,000 tax-free – or up to £1 million as a couple.

Additionally, you can usually leave assets to your spouse or civil partner without triggering an IHT charge.

Any portion of your estate that you do not leave to a spouse or civil partner or that exceeds the IHT thresholds, is usually taxed at 40%.

However, under current rules, your pension is not considered part of your estate for tax purposes. As such, pensions can provide an effective way to pass on your wealth tax-efficiently.

Yet, it’s important to note that the Lump Sum and Death Benefit Allowance (LSDBA) limits the overall amount that your beneficiaries can take from your pension scheme without incurring a tax charge. This only applies if you die before you turn 75.

Inheritance Tax changes could result in a “double tax” on pensions

From April 2027, pensions will no longer be exempt from IHT. So, if your estate exceeds the tax-free thresholds, any unused pension savings will be included in IHT calculations.

According to figures from the UK government, this change could increase the average IHT bill by £34,000.

What’s more, if you pass away after the age of 75, your beneficiaries will pay Income Tax at their marginal rate when they draw from your pension.

This could mean that any pension savings you leave for your loved ones are diminished by a “double tax” – IHT and Income Tax.

So, if you’re currently relying on using your pension to help mitigate IHT, it might be worth reviewing your estate plan.

3 practical ways to address the planned Inheritance Tax changes

Fortunately, there are several ways you could mitigate a potential IHT bill, in light of the planned changes.

1. Gift some of your wealth during your lifetime

You could reduce the value of your estate and a potential IHT bill by gifting some of your wealth to loved ones during your lifetime.

In the 2024/25 tax year, you are entitled to the following gifting allowances and exemptions:

  • Annual exemption – Allows you to gift up to £3,000 to one or multiple people. You can carry forward any unused exemption to the following tax year – but only for one tax year.
  • Gifts for weddings or civil partnerships – You can give up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to any other person.
  • Small gift allowance – You can give as many gifts of up to £250 each tax year as you wish (provided that you have not used another allowance on the same person).
  • Gifting from surplus income – This rule allows you to pass on money from your income directly rather than gifting from savings. Theoretically, there is no limit to the amount you could gift in this way, although you must meet the strict criteria to qualify for this exemption – payments must be made regularly, you must be able to maintain a reasonable standard of living while giving the gifts, and your gifts should come from surplus income.

Beyond these annual gifting exemptions, most other gifts you give are likely to be “potentially exempt transfers” (PETs).

Any PETs will usually fall outside your estate for IHT purposes, provided that you live for more than seven years after giving the gift. However, if you die within seven years, taper relief rules may apply.

This means that the amount of IHT due will be calculated based on how soon you die after making the gift.

The table below shows how IHT relief tapers for PETs:

Bear in mind that PETs will be the first part of your estate assessed against your nil-rate band. So, if you die within seven years of making PETs that do not exceed your nil-rate band, there will be no taper relief.

2. Leave your pension to your spouse or civil partner

Any wealth – including pensions – you leave to your spouse or civil partner is usually exempt from IHT. So, passing your pension savings on to them could be an effective way to mitigate your IHT liability.

However, your pension will not automatically transfer to your spouse or civil partner when you die; you need to actively nominate them as a beneficiary.

You can usually do this by contacting your pension provider and completing an “expression of wish” or “nomination of beneficiaries” form.

If you have multiple pensions, it’s important to make arrangements with each provider to ensure that your spouse or partner benefits from your full pension entitlement.

You might also want to update any expression of wish forms you have completed previously, for example, if an ex-partner is named as a beneficiary.

It’s worth noting that while your partner or spouse may not incur an IHT charge if you pass your pension on to them, they will still have to pay Income Tax on any withdrawals they make if you die age 75 or older.

3. Place life insurance in a trust

Calculating your IHT liability and setting up a life insurance policy for this amount may provide invaluable peace of mind.

Your beneficiaries could use the insurance payout to cover a potential IHT bill, which may alleviate some of the stress and financial pressure they may otherwise experience after you’re gone.

What’s more, placing your life insurance in a trust could mean that the payout will not form part of your estate for tax purposes and as such, will not be subject to IHT.

Additionally, your loved ones may receive their inheritance more quickly, compared to going through the probate process which can take months or more.

Get in touch

If you’re concerned about the upcoming changes to IHT and pensions, we can help you review and update your estate plan.

Please email hello@bluewealth.co.uk or call us on 0117 332 0230.

Please note

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.

Blue Wealth Ltd is not responsible for the accuracy of the information contained within linked sites.

Blue Wealth Ltd is an appointed representative of Best Practice IFA Group Ltd, which is authorised and regulated by the Financial Conduct Authority.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate estate planning or tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.

Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.

Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.

Approved by Best Practice IFA Group 11/02/2025

Team update – The Blue Wealth Gatsby-themed Christmas party

At Blue Wealth, we love what we do and work hard throughout the year to help you achieve your financial and life goals.

So, when December rolls around, we’re ready to let our hair down and celebrate our efforts at the team Christmas party.

Gatsby glad rags

Our end-of-year get-together took place on Friday 13 December, at the newly renovated Delta Hotels by Marriott in the heart of Bristol city centre.

The whole Blue Wealth team and partners turned up to enjoy some festive fun.

Our theme for the evening was The Great Gatsby. If you’ve read this classic novel by F. Scott Fitzgerald or seen one of the many screen and stage adaptations, you’ll know that this gripping story was set in the roaring 1920s.

We had great fun dressing up in suits, flapper-style dresses, sequins and glitz!

Delicious food and first-class entertainment

The party began with an excellent three-course meal, including turkey and all the Christmas trimmings.

We then moved on to a spot of gambling (with novelty money) at the casino tables, before singing and dancing the night away to music performed by an outstanding live band – there were some impressive moves on the dancefloor!

It was a brilliant evening and a great opportunity to get the team together to mark the end of another successful year.

Now that January is in full swing, we’re back hard at work and looking forward to developing Blue Wealth in 2025.

Keep your eyes on your email for news of our next social and charity events.

Get in touch

If you’d like to find out more about the Blue Wealth team and learn how we can help you with your financial planning needs, we’d love to hear from you.

Please email hello@bluewealth.co.uk or call us on 0117 332 0230.

Please note

The content of this newsletter is offered only for general informational and educational purposes. It is not offered as, and does not constitute, financial advice.