Maximizing Your State Pension: A Crucial Financial Opportunity for UK Residents Aged 40-73
Retirement planning is a complex process that involves navigating through a plethora of options and strategies to increase your savings. While some opportunities may come with hidden drawbacks, there are certain prospects that stand out as particularly valuable.
Currently, individuals aged 40 to 73 in the United Kingdom have a unique chance to significantly boost their State Pension by purchasing missing National Insurance (NI) years from the period between 2006 and 2016.
Understanding the Importance of National Insurance Years
The UK’s ‘new’ State Pension currently stands at £203.85 per week. However, the exact amount an individual receives depends on the number of qualifying full National Insurance (NI) years in their record. These NI years are typically accumulated through employment and NI contributions, but claiming benefits or providing care for others can also count towards qualifying years.
To receive the maximum State Pension, an individual generally needs around 35 full NI years. However, the precise number of years required may vary based on factors such as age and NI record up to this point. For example, someone who has worked consistently since the age of 18 and has never taken time off for caregiving or unemployment may reach the 35-year threshold earlier than someone who has had gaps in their employment history.
The Impact of Additional NI Contributions Beyond 35 Qualifying Years
If you have already achieved 35 full qualifying years of NI contributions, you may be wondering whether continuing to pay NI will further increase your State Pension. The answer to this question depends on your specific circumstances and the type of State Pension you are eligible for.
For individuals who reached State Pension age on or after 6 April 2016, the ‘new’ State Pension rules apply. Under this system, once you have reached 35 qualifying years, additional years of NI contributions will not increase your State Pension income further. This is because the ‘new’ State Pension is based on a flat rate, which is currently set at £203.85 per week (for the tax year 2023/24). Once you have met the requirement of 35 qualifying years, you are entitled to receive the full flat rate, and any additional years of contributions will not boost your pension income beyond this level.
However, if you reached State Pension age before 6 April 2016, you will fall under the ‘basic’ State Pension rules. In this case, you may have the opportunity to increase your State Pension income even if you have already achieved 35 qualifying years. Under the ‘basic’ State Pension system, you can accrue additional State Pension through the State Second Pension (S2P) or the State Earnings-Related Pension Scheme (SERPS). These additional pension schemes are based on your earnings and the amount of NI contributions you have made throughout your working life. If you continue to work and pay NI contributions beyond the 35-year threshold, you may be able to increase your State Pension income through these additional pension schemes, although the specific amount of increase will depend on factors such as your earnings level and the number of additional years you contribute.
Checking Your NI Contributions and State Pension Status
To make informed decisions about purchasing missing NI years and planning for your retirement, it’s essential to understand your current NI contributions and State Pension status. Fortunately, the UK Government provides online services that allow you to easily check this information. you can find the service here: “https://www.gov.uk/check-national-insurance-record”
To check your NI contribution record, you can access your National Insurance record online through the gov.uk website. You will need to create a Government Gateway account if you don’t already have one. Once logged in, you can view your NI contributions history, including any gaps in your record.
To check your State Pension status, you can use the online “Check your State Pension” service, also available on the gov.uk website. This service will provide you with a State Pension forecast, which estimates the amount of State Pension you could receive based on your current NI record and the age at which you can claim it.
By regularly checking your NI contributions and State Pension status, you can identify any gaps in your record and make informed decisions about whether purchasing missing NI years is a beneficial step for your retirement planning.
The Rare Opportunity to Buy Back Missing Years
Under normal circumstances, individuals are permitted to buy back up to six years of missing NI contributions. However, when the ‘new’ State Pension was introduced, transitional arrangements were put in place to allow people to fill gaps dating back to 2006. This presents a rare opportunity for those who may have missed contributing to their NI during this period.
For instance, if an individual took a career break to raise children or care for a family member between 2006 and 2016, they now have the chance to purchase those missing years and boost their State Pension. Similarly, those who were self-employed or worked abroad during this period may also benefit from taking advantage of this opportunity.
The Cost of Purchasing Missing NI Years
The cost of purchasing missing NI years depends on the specific year(s) you wish to buy back and the type of NI contributions required. For the tax year 2023/24, the rates for voluntary Class 3 NI contributions (the most common type for buying back years) are as follows:
- £17.45 per week for the tax year 2023/24
- £824.20 for a full year of voluntary Class 3 contributions
It is important to note that these rates are subject to change each tax year, and the cost of buying back years from earlier tax years may be different. Additionally, some individuals may be eligible to pay Class 2 NI contributions, which have a lower weekly rate of £3.45 for the tax year 2023/24.
The Deadline Extension: Act Before 5 April 2025
Initially, the deadline for purchasing missing NI years was set for 5 April 2023. However, recognizing the high demand for this opportunity, the Government has extended the deadline twice. The first extension pushed the deadline to 31 July 2023, and a subsequent extension has now set the final deadline at 5 April 2025.
This extension provides individuals with ample time to assess their NI record and determine whether purchasing missing years is a worthwhile investment for their retirement planning. It is important to note that the cost of making voluntary NI contributions will remain frozen until the 5 April 2025 deadline, making it an even more attractive opportunity.
The Benefits of Purchasing Missing NI Years
The primary benefit of purchasing missing NI years is the potential to significantly increase your State Pension. Each additional qualifying year can add up to £5.29 per week to your State Pension, which equates to around £275 per year. Over the course of a 20-year retirement, this could amount to an extra £5,500 in State Pension income.
Moreover, increasing your State Pension can provide a more stable and reliable source of income in retirement, which can help to alleviate financial stress and improve overall quality of life. It can also reduce the need to rely on other sources of income, such as personal savings or investments, which may be subject to market fluctuations or other risks.
Who Should Consider This Opportunity?
While the focus is primarily on those aged 40 to 73, even individuals under 40 can benefit from assessing whether topping up their NI record is worthwhile. This is particularly relevant for those who have had gaps in their employment history or who have worked abroad for extended periods.
It is also important to note that purchasing missing NI years may not be the best option for everyone. Those who are already on track to receive the full State Pension under the ‘new’ State Pension rules or who have limited financial resources may not see a significant benefit from this opportunity. However, for many individuals, particularly those with gaps in their NI record or those who fall under the ‘basic’ State Pension rules, purchasing missing years can be a smart financial move.
Final Thoughts
The option to purchase missing National Insurance years presents a valuable financial opportunity for UK residents aged 40 to 73. By taking advantage of this chance to fill gaps in their NI record dating back to 2006, individuals can potentially see a significant increase in their State Pension income.
With the deadline for this opportunity now extended to 5 April 2025, and the cost of voluntary NI contributions frozen until this date, there has never been a better time to explore this option as part of your retirement planning strategy. By securing a higher State Pension, you can look forward to a more comfortable and financially stable retirement.
To fully understand the implications of purchasing missing NI years and determine whether it is the right choice for your unique circumstances, it is highly recommended to discuss this matter with a qualified and experienced accountant.
Small Business: Motivating your employees
The performance of your employees has an impact on your bottom line and here are 11 useful tips that can help.
Numerous studies have suggested that highly engaged employees are more likely to exceed performance targets and achieve success. As not every employee shares the same personality type and not everyone is motived by the same incentive, how you should go about motivating your employees is an interesting subject worth discussing.
Why do employees work?
Before you start providing incentives to your employees with an aim to motivate them, it is worth asking the question – why do they work and most specifically, why do they choose to work for you at this point in time?
Undeniably, the need for financial security plays a big part but it is not the whole picture. Factors that lead employees to show up for work may include:
- This is a place where they belong
- The job may be a reflection of their self-worth
- The work may be fulfilling and rewarding
- They may enjoy exerting control
- They may like to be challenged
If you are interested in delving deeper, both Maslow and Herzberg have theories of motivation and the internet is flooded with articles about these two scholars which can help you to understand human needs.
The idea is that once you have profiled each person and their traits, you can then start to personalised motivation.
11 effective methods of staff motivation
Individualised motivation
Individualised motivation is a scientific step that can help to motivate individuals to the maximum of their abilities. To do that, you must first understand their individual needs.
Create a safe working environment
Under the health and safety law, business owners must provide a working environment with little or no risks to the health and safety of their employees. That aside, most people tend to prefer working in an office that is quiet (particularly in an open-plan office), tidy, well-lit, has adequate ventilation, has access to clean drinking water and toilets, as well as has sufficient work areas where they can perform the work comfortably. If your office environment ticks all the points above and they are important to an employee, then you will have a happy and engaged employee.
Create a positive office culture
Creating a morale-boosting office culture does not always mean providing free doughnuts and coffee. In this instance, we are talking about projects that have an impact on the wellbeing of your employees, their relatives or even strangers. For instance, having a scheme that allows extra holidays if an employee needs to care for a sick relative or a project that involves your staff to help out those less fortunate in your community.
Listen to your employees
No one likes to be ignored. Be an active listener to your employees and allow them to share ideas, ask questions, or discuss anything that is important to them. When they speak, give them your full attention and maintain eye contact. If they are giving you an idea that will help your business, let them know accordingly.
Have a dialogue
The other side of listening is sharing. Talk to your staff frequently, involve them in your company vision and tackle any potential issues that may lead to disengagement.
Set meaningful goals
Believe it or not, most people actually love a challenge so using goals to motivate employees are not new. The crux of the matter is the goals must be meaningful – while they can be challenging, the goals should be attainable if one puts in the appropriate time and effort.
Timely recognition
When a job is done well, a sincere thank you, positive feedback or a token of appreciation often will make the employee feel positive and appreciated, though it must be done soon following the task rather than a few months later.
Social recognition
More and more companies are using social media to give a shout out to their star performers.
Encourage learning
We live in a world that is constantly changing, primarily shaped by the evolution of technology, globalisation of commerce, social and political landscape, among other factors. To help make your business more agile and competitive, encourage your employees to keep learning and challenge themselves.
Promote from within
Most employees like to progress as an individual and as an employee. When there are new opportunities, consider to promote from within and create a smooth transition.
Build trusting relationships
Relationships often outlast companies so it is wise to invest time and effort to build strong relationships with your staff.
Tax Agility supports small businesses in London
Every small business owner knows the importance of having motivated employees. At Tax Agility. While our small business accountants may not be able to help motivate your staff specifically, we can help you tackle your accounts, bookkeeping and tax issues, giving you peace of mind so you can concentrate on running your business and providing motivators that matter to each individual staff.
We provide the following services:
- Accounting and bookkeeping specific to small business
- Tax and VAT for small businesses
- Payroll services
- Small business management consulting
Call us today on 020 8108 0090 or get in touch via our contact page to arrange a complimentary, no-obligation meeting.
Other useful articles pertaining to small businesses that may interest you are:
- Small business: 5 ways to get new customers
- Small business: managing rising costs
- Accounting tips for small businesses
This post is intended to provide information of general interest about current business issues. It should not replace professional advice tailored to your specific circumstances.
Tax planning for families
Family tax planning is a smart way to utilise all of the exemptions and allowances legally afforded to you.
In the UK, every individual has a personal tax-free allowance and is taxed independently. This applies to working parents, retired grandparents and also children. Because of this tax structure, it is possible to use legitimate means to reduce the joint size of your family’s tax bill.
Strategic (but non-aggressive) family tax planning can benefit contractors, small business owners, and even working adults. If you plan to undertake some form of family tax planning, however small it may be, we advise you to speak with a qualified and independent accountant first, whether it is our team at Tax Agility or an equally experienced professional. To give you an idea about family tax planning, we aim to discuss family tax planning in detail and highlight essential areas in this article.
What is family tax planning?
Family tax planning is a tax strategy, which maximises the usage of the many tax exemptions and tax allowances that exist within the legal framework for members of a family household. Often this happens through the careful shifting of income from the hands of the primary wage earner to their spouse or children.
The rationale that dictates this strategy is that anyone who does not earn as much as the primary earner of a household will be taxed at a lower tax band. Therefore, the maximum amount of taxable income that can be legally transferred to another family member should be utilised to minimise taxes and maximise household income.
Every person in a household is entitled to an annual personal allowance (or PA) on any income. A personal allowance is a threshold above which income tax is levied on an individual’s income. The personal allowance for tax year 2019/20 is £12,500 for individuals earning less than £100,000 a year. Once the £12,500 threshold is hit during the tax year, that person has to start paying taxes on any income they earn that is above that amount.
For example, if you earn £10,000 in the 2019/20 tax year, you do not have to pay any tax for that year. But if you earn £200,000 in the same year, you will lose your personal allowance and pay a higher tax rate on the vast majority of your income.
Examples of family tax planning strategies
Finding ways to spread income across various members of a household is the key to minimising the amount of tax which your family will pay in a year, and maximising how much income is tax-free or paid to a lower tax band. This can be done in a variety of ways – however, these strategies must be approached with proper regard for rules and regulations.
Make your family members shareholders
A highly popular approach among company directors when it comes to lowering tax bills is to make your spouse or a family member a shareholder in your company. This arrangement allows them to receive dividend payments instead of salary; and because dividend is taxed on a lower rate than salary, the overall tax bill is reduced accordingly.
Putting your family members on payroll
If your business has a legitimate need, like you need a weekend driver to take care of deliveries and your son is free, you can employ him and pay him commercially viable wages. The payment to your son is a tax-deductible expense in your company accounts. Follow the link to the article “Does HMRC object to putting family members on the payroll” if you would like to know more.
Marriage allowance
One legitimate strategy is to make use of marriage allowance, which allows an individual who earns less than £12,500 a year to transfer £1,250 of their personal allowance to their spouse or partner. By doing just that, you can immediately reduce your tax bill up to £250. To qualify:
- You must be married or in a civil partnership
- The lesser earner receives an income which is below the personal allowance threshold, i.e. £12,500
- The spouse or partner earns between £12,501 and £50,000 and pays income tax at the basic rate
Junior ISA
In theory, you can give as much as you like to your children if they are below 18 years old. But if they put the money in the bank and earn interest, then they can only earn up to £100 in interest. To get around this, you can consider making use of a Junior ISA.
A Junior ISA does not have the £100 interest limit, and the account holder does not pay tax on interest on the cash they save (for cash Junior ISA), or the account holder does not pay tax on any capital growth or dividends they receive (for stocks and shares Junior ISA).
At present, you can contribute £4,368 a year to a Junior ISA account. The amount you can contribute is usually increased every year, meaning by the time your child reaches 18, they are likely to have a substantial amount of savings in their Junior ISA account for which they do not have to pay tax on interest earned.
Inheritance tax
When it comes to inheritance tax, how much can you give to your children tax-free is one of the questions we are asked regularly. The answer lies in how well you plan.
You can give your children £3,000 worth of gifts a year tax-free as long as the gift takes place seven years before your death. This is known as annual exemption. If the years between gift and death is less than seven years, a tiered-tax system applies. Visit this HMRC page if you would like more information.
When you pass, the first £325,000 of what you own is not taxed. But anything above this amount is subject to 40% inheritance tax. The threshold is increased to £475,000 if you give away your home to your children or grandchildren.
Often you will see an oversimplified example using a house that you own to illustrate inheritance tax. In reality, your estate is likely to include more than a house. If you are a small business owner, any ownership of a business, or share you own in a business, is considered your estate and is subject to inheritance tax. But – here is the bit that requires some planning – your family members can benefit from Business Relief (either 50% or 100%) on some assets (property, building, machinery and unlisted shares) in your estate which you pass on to them either when you are alive or as part of your will. If you would like to know more about inheritance tax and business relief, get in touch with us today by calling 020 8108 0090.
Capital Gains Tax
As the name suggests, Capital Gains Tax applies when you sell something that has increased in value. There are many ways to lower your capital gains tax legitimately, including making use of annual exemptions, making gains through an ISA, pension and investment bonds, transferring the asset to your spouse, switching asset class, reducing your taxable income, and investing in small companies to name but a few. As there is no one-size-fits-all approach, it is best that you talk to one of our experienced chartered accountants first.
Planning for the future
Family tax planning is an excellent method of ensuring that you, your partner and your children will benefit from the many allowances and exemptions that are available in both the short-term and the long-term – including contingency plans that will protect your family in the event that something happens to you.
However, in order to fully utilise the breadth of opportunities available as part of a family tax planning strategy, such strategies should not be approached without the advice of a professional who has experience in tax planning for families. At Tax Agility, our team of experienced chartered accountants can work with you to navigate the complicated world of tax planning, help you to explore the available options, and ensure that you have the best strategy in place for your family.
In order for us to implement the most effective strategy for your family, we need to understand your financial position first. For this reason, we offer our first consultation free of charge to allow us to learn about your family’s financial circumstances and create an effective accounting solution.
Simply get in touch on 020 8108 0090 or contact us via our Online Form today, so that we can create a strategic family tax planning guide to suit your needs.
This article was first published in 2014 and has been updated on 14/08/19.
If you found this helpful, take a look at:
- Everything you need to know about corporate tax
- Tax Planning and your Personal Allowance
- Accounting tips for small businesses
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
Why Hire an Accountant
We know what you’re thinking — you’ve been told time and time again you should hire an accountant to look out for the financial success of your new business, but you ask yourself; do I really need somebody else on hand, looking through my books — can’t I just do it myself?
In truth, yes you can. It may seem counterintuitive for us to say, but if you’re a very small, recently formed business, you can get by without an accountant for a short period. But the question is, why would you want to?
So, why hire an accountant? Possibly the most logical reason to hire an accountant is due to the simple fact that they’re on your side; your success if their success. For this reason, hiring an accountant is much more of an investment rather than an expense. Mostly because when you choose to take on an accountant…
They uncover hidden savings
An accountant can uncover obscure, hidden savings in your accounts that you, as a business owner (new or old), wouldn’t necessarily think to look for.
This may sound like an immodest boast, but it makes perfect sense when you think about it. Chances are you are entirely on top of your industry, as you keep up with every little change that takes place; day in, day out. The same is true of an experienced, professional accountant.
For this reason, your accountant can provide you with proactive business advice whenever an occasion calls for it, helping you to take advantage of new government legislation the moment it comes into force, and therefore greatly impacting your bottom line.
They save you time and headaches
There’s a good chance that the daily financial management of your business is by far your least favourite activity of the day. It's probably a good idea to hand these tasks over to a professional then, while you can use your newly-saved time to focus on areas of your business that you are an expert at improving.
It’s sounds like a cliche, but when you hand over your accounting work to a professional accountant you’ll also save yourself numerous headaches, as you know your accounts are being kept up to date at all times and all necessary forms are being filed — something it’s often hard to remind yourself to keep up with.
They identify new tax planning opportunities
New tax planning initiatives are frequently being unveiled by the government, and though you may have your ‘finger on the pulse’ to some extent, it’s your accountant who will be paying special attention to these areas. This is because they know that money saved for their clients (including you) encourages you to continue the relationship.
Whether these are tax planning opportunities you're not currently taking advantage of, advising you to reconsider whether you’re still applying the best VAT scheme as your business grows, or identifying a way for you to maximise your tax credit claims, hiring a proactive, experienced accountant will ensure that these new opportunities are available to you on a regular basis.
Professional, experienced accountants
To speak with professional, experienced accountants to discuss how we can help you and your very unique business needs, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting.
This blog is a general summary. It should not replace professional advice tailored to your specific circumstance.
Experienced Accountants & Other Advisers Benefit SME Owners
If you’re a small or medium-sized business (SME) owner you may find that you can benefit by working alongside experienced advisers who have been there, done that (whether for themselves in the past, or for other clients) and can help you navigate the choppy waters of business.
You don’t have to do everything on your own. Even if you’re in a partnership (or you’re planning on hiring an employee very soon), running an SME can be a lonely experience, especially in the early days. For this reason, when you work with experienced advisers, whether accountants, business advisers, or human resources professionals, you’ll gain not just from their insight and experience, but also from their presence. That's why it is important to embrace such relationships with experts and once you've done the appropriate research to seek out experienced advisers, don't shy away from reaching out to them.
Get Measurable Motivation
When you work alongside an experienced adviser, whether in one particular field (such as accountancy) or in a more general role, they will give you measurable motivation going forward, even if they don’t realise they’re doing it.
For some reason we’re incredibly good at breaking our word to ourselves, but most of us find it incredibly hard to break our word to somebody else. When you’re frequently checking in with an adviser you’ll find that they make a point of asking whether you followed through with something you discussed last time you spoke - thus acting as an accountability partner and motivating you to do what you said you’d do.
Gain New, Professional Connections
Whether you’re paying them for their services or not, it’s never an advisor’s job to introduce you to their network of professional connections. With that said, an experienced advisor (including accountants) will be happy to introduce you to somebody if and when they believe such an introduction will be beneficial both to you, and to the professional in question.
This is how you build your network. It could be that your adviser knows how to personally help you with ninety percent of your queries; but when it comes to that final ten percent, advisers worth their salt will known who to introduce you to.
Delegate Elaborate, Time-Consuming Work
Most advisers, especially when it comes to the financial side of business, will offer you advice but will stop short of doing work on your behalf. Though receiving financial advice is incredibly useful, especially when you’re just starting out in business, if you require assistance in dealing with the financial side of your business you should look into hiring an experienced, professional accountant.
Professional accountants allow you to delegate the elaborate, time-consuming accountancy tasks that, up until this point, have likely been taking up far more of your time than you originally thought they would. A professional accountant will also work on your behalf to ensure you receive all the tax reliefs available to you. That said, we have an extensive bank of information on our blog that should give you more than enough information to digest before needing to take on experts fulll time.
Experienced Accountants
To speak with an accountant to discuss the benefits of handing the financial side of your business over to our experienced professionals, contact us today on 020 8780 2349 or get in touch with us via our contact page to arrange a complimentary, no obligation meeting. In the meantime, feel free to check out our services page to see what we offer in more detail.
Looking for Accountants in London?
Say Hello to Our New Central London Office
Whether you’ve been a client of ours for years, or you’re looking for accountants in London and have considered getting in touch with us for some time, we’d like to take this opportunity to announce our latest brand-new office, ideally located right in the very heart of central London.
Our new address is below:
Tax Agility
17 Cavendish Square
London, W1G 0PH
Read more