Medics Wealth Management Blog

Decode your tax code

Fri, 20 Feb 2026 14:11:56 GMT

If you have received a new tax code recently, do not just assume it is correct.

A recent Freedom of Information request from a Top 20 accountancy firm revealed some bad news for taxpayers. HMRC was asked about overpaid income tax in 2023/24 and provided an estimate of £3,470 million owed to 5.6 million taxpayers. The accountants pointed to Pay As You Earn (PAYE) tax codes as being one of the major reasons why HMRC’s coffers were being overfilled.

If you are employed and/or receive any form of private pension, you will have a PAYE code (or codes for multiple sources of income), calculated by HMRC and sent to your employer/pension provider. You may receive details of your PAYE code by a paper ‘PAYE coding notice’, often issued ahead of a new tax year, but if you did not, it can be checked online via your HMRC Personal Tax Account.

The PAYE system was introduced in 1944, and the PAYE code remains a cornerstone of HMRC’s effort to collect the right amount of income tax from you, particularly if you are outside the self assessment tax regime.

While the PAYE code is a single number, underneath it is a calculation which totals:

Your tax-free allowances: This will include your personal allowance (if you are entitled to one) for each income source and any other tax-free allowances, such as tax-deductible expenses related to your work.
Deductions for tax: This can cover taxable benefits, such as company cars, tax due on estimated untaxed interest for the current tax year and the collection of underpaid tax from previous tax years.

The way in which that underpaid tax is collected often causes confusion, as it involves an HMRC estimate of your marginal rate of income tax. For example, if you are a 40% taxpayer and you owe HMRC £1,000 in tax, the deduction in your coding calculation will be £2,500 as £2,500 @ 40% = £1,000.

If you think any element that goes into your PAYE code is wrong – perhaps your new company car is electric and has a lower taxable value – contact HMRC, not your employer (or pension provider), as only HMRC can alter your code.

Notes: Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

Salary sacrifice reform on the way

Wed, 21 Jan 2026 23:45:16 GMT

Although not scheduled to take effect until April 2029, it is important to understand the implications of the changes now.

Salary sacrifice has become an increasingly common way for employees to make their pension contributions, with most major employers offering schemes. It currently has some important advantages for employees over choosing to pay contributions from the after-tax salary:

There are no employee national insurance contributions (NICs – at up to 8%) on the salary sacrificed.
Similarly, there are no employer NICs (generally at 15%) on the salary foregone. A part of this saving – or possibly all of it – could find its way into enhancing the pension contribution.
Full income tax relief is effectively received immediately, whereas, in many instances, tax relief on personal contributions may be only at the basic rate initially, with the balance reclaimed later from HMRC.

While the income tax relief will remain unchanged from 2029/30, the NICs exemptions will be capped on the first £2,000 of sacrificed salary.

Example of salary sacrifice reform

The example below shows how salary sacrifice works now and how it will work from 2029/30 for a higher rate taxpayer (outside Scotland). The employee chooses to divert £5,000 of their salary to a pension, with their employer putting two-thirds of their NICs saving (10% out of 15%) towards the pension contribution.

+ Employer and employee NICs savings limited to those on the first £2,000 of salary sacrificed in 2029/30.

* Half of the relief is given at source by a net contribution, with the balance then reclaimed from HMRC.

Salary sacrifice is particularly valuable in reducing your income, if:

You are subject to the high-income child benefit charge, which is triggered when income is above a threshold of £60,000. For couples (married or not), it’s the higher of your two incomes that counts, not the total.
Your income is in the band between £100,000 and £125,140, where the tapering of your personal allowance means you suffer an effective marginal income tax rate of up to 60% (67.5% in Scotland).
Your income exceeds £100,000 and you lose entitlement to tax-free childcare. Again, for couples (married or not), it is only the higher of your two incomes that counts.

As these changes won’t take effect until 2029/30, you have four tax years (including the last few months of 2025/26) to possibly benefit from the existing rules, something that you may wish to consider as part of your year-end tax planning.

Notes: The value of the investment and the income from it can fall as well as rise and investors may not get back what they originally invested, even taking into account the tax benefits. Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

If I need care, will I have to sell my house?

Sat, 27 Dec 2025 19:31:24 GMT

The reality of care funding

Funding care for the elderly has been a political hot potato for a long time. A series of policy initiatives, reviews and reports have come and gone with little alteration to what is a flawed and inadequate system. One of the most controversial aspects is whether those needing care will be forced to sell their home. For many the family home is the most valuable thing they will ever own. Having worked to pay off their mortgage, many see bricks and mortar as the ultimate asset - to be handed on to the next generation. Care costs can jeopardise this, with years of very large fees.

Unfortunately, the existing system means that selling property to pay care costs is hard to avoid. Although you can’t be forced to sell, home ownership will often exclude you from care funded by the Local Authority.

According to a recent article in Which magazine, around 1.3 million people over 65 currently receive paid-for care of some kind and a further 1.9 million rely on voluntary help from family and friends. Around 40% of those who receive care are funding it them-selves.

WHAT DOES CARE COST?

Social care is different to medical treatment because it is not free at the point of delivery for everyone. Rather than caring for medical needs, social care is provided to help older people with everyday needs, such as nutrition, personal hygiene and going to the toilet. Local authorities carry out detailed assessments to determine eligibility and then apply a means test to establish whether those who receive support are obliged to contribute to the cost of care. (For exceptions see box: “NHS Continuing Healthcare.”)

If someone receives care at home – such as help with getting up, washing and dressing – this can cost between £15 and £20 an hour. If they need more help, the hours and the costs will rapidly rise. For example, 14 hours per week will cost £11,000 to £15,000 a year, while all-day care might be £30,000 to £45,000 per year. According to the Money Advice Service, live-in, 24-hour care can cost as much as £150,000 a year, noting that, 'in these circumstances, residential care is usually more cost-effective.' Care-home costs vary depending on location and needs and homes that also provide nursing will usually charge more.

According to the previously mentioned article in Which magazine, across the country those who are self-funding residential care can expect to pay between £31,000 and £43,000 a year. Costs in London and the south, are higher, with average fees between £37,000 and £50,000 a year and some homes charge far more.

MEANS-TESTED CARE

A means test applies to determine whether you must fund care yourself. This article considers the situation in England as there is a higher threshold in Wales and an entirely different system in Scotland. In England and Northern Ireland, the threshold is £23,250 and has not been changed since 2010. Eligible capital' above the limit, will mean you are self-funding and must pay for any care you receive.

Those with less than £23,250 get some help with their care costs from their Local Authority, but they are still required to make some payment unless they have less than £14,250.

Savings and investments count as eligible capital and the value of your home does, too, with a few exceptions. For example, the home is excluded if you receive care at home, rather than in a residential establishment. It is also disregarded if your partner or a relative aged 60 or over continues to live in the house. This usually means that if one person in a couple needs residential care, their joint home will not be assessed as part of their assets for the purposes of care funding.

PAYING FOR CARE

What options do you have, if you need to fund care yourself? If you are receiving limited care in your own home, this can often be paid for out of income and some savings. If a greater number of hours are required, the cost may become too expensive and you may need to consider other options, such as equity release, to release enough money to continue to stay in your home and receive the care you need. Equity Release might also allow expensive home adaptations, such as a stairlift. However, it is relatively expensive and would generally not be a first-choice option.

Residential care is more expensive and, for many, will cost more than their retirement income. Those funding their own care can normally claim Attendance Allowance, which is not means-tested and is worth between £73.90 and £110.40 a week (in 2025/2026), depending on need. This would contribute between £3,843 and £5,741 a year, to put towards fees. However, for many the cost of care will still exceed their income and will begin to erode their capital.

IF YOU SHARE YOUR HOME

Not everyone who owns a house needs to fund care themselves. If your partner (or other close relative aged over 60) carries on living in the family home after you move to a care home, the value of the house doesn't count as eligible capital. If this is the case and you have savings and investments worth less than £23,250 you are likely entitled to at least some funding by your Local Authority. The means test should establish the level of support you can receive.

DO YOU HAVE A FUNDING GAP?

If you are likely to have to pay for care, make a list of your current sources of income - from private and state pensions, interest from savings and dividends from investments. If you qualify for Attendance Allowance, add in a figure for this too. Compare the total with any fees you might have to pay. If your income exceeds these, you don't have a gap. If it's less than the cost of care, you will need extra funds to make up the difference.

FUNDING A SHORTFALL

If you are the only person who lives in your home, one option is to sell it, although this is not always desirable if the property is of family significance or if moving to a care home is not likely to be permanent. For alternatives to selling up, see the box, “Alternatives to selling your property.”

PRESERVING CAPITAL

Selling your home will often release enough cash to fund care fees, but questions will remain. Will the money run out? Will anything be left to pass on? Once the decision to sell has been taken, consider how to put appropriate care funding on a firm footing. For self-funders, typical life expectancy in a home is four to five years, so you'll have to bridge any shortfall for at least this long - and have money left to cover contingencies. Don't forget that fees will likely increase each year as they tend to increase faster than inflation and could rise steeply if care needs change. In terms of capital preservation, here are three of the main options.

Savings: With interest rates being so low, it's hard to protect capital without taking risks. For savings, fixed-term savings bonds are likely to be your best bet to match inflation. Get the best rate you can without tying up too much. Consider longer-term bonds for what's left once foreseeable expenses are covered. Low-risk investments are another possibility but they are still likely to pose more risks than cash savings and should be approached with caution.

Investments: If the proceeds from selling your property produce more than you need to fund care costs for the next five or six years, you could consider investing the remainder. As these funds may also eventually be needed to pay for care too, you would be wise to seek professional advice and probably stick to a relatively low-risk portfolio designed to preserve capital rather than go for growth.

Immediate-needs annuities: There is not currently insurance available to insure against the cost of future long-term care. However, 'immediate-needs annuities' allow you to limit your exposure and guarantee future funding. These products are only available through qualified advisers and are individually under-written, considering the age, health and estimated life expectancy of the person receiving care. A single premium is paid at the outset and in exchange the provider pays (tax-free) fees to the care home for the rest of your life.

Policies can be set up to increase with inflation, to cover rises in fees. It is also possible to build in an element of “capital protection,” in case the insured dies much earlier than expected, so that not all the initial premium is lost. They can seem expensive but immediate-needs annuities effectively cap the amount you will spend on care and provide relative security of future funding.

SUMMARY

Selling your home if you must go into care is not a foregone conclusion. If you have sufficient income to fund the fees yourself or live with a partner or close relative over 60, your home may not be assessed as part of any means test. Otherwise, if you move into a residential care home, the value of your home will be assessed as capital in any means test and may well need to be sold to pay care home fees. Once your capital falls below £23,250 some, if not all of the fees may be paid by the Local Authority.

If you find that you do end up funding your own residential care, you can at least be consoled that self-funding gives you one key advantage – you usually get to choose which care home you go to. This is often not the case for those whose care is funded by the Local Authority, who will likely be allocated to an establishment according to the Local Authority budget limits, rather than the preferences of the individual.

The pension withdrawal dilemma

Tue, 21 Oct 2025 20:35:12 GMT

Are you considering drawing a lump sum from your pension before the Autumn Budget?

One of the major tax benefits of saving through pensions is that, generally, 25% of the pension’s value can be drawn as a lump sum, free of income tax, up to a maximum of £268,275. From the point of view of the law, that cash is defined as a pension commencement lump sum (PCLS) which, as the name suggests, must be taken at the same time pension income starts to be drawn. In practice, the level of regular income taken can be nil and the lump sum (and accompanying income) may be drawn in stages; there is no statutory requirement for your pension pot to be converted to cash and income all at once.

The future of the PCLS is a staple of pre-Budget rumours. Forty years ago, one of Chancellor Rachel Reeves’ distant predecessors, Nigel Lawson, teased about “the anomalous but much-loved tax-free lump sum” in his Budget speech, but made no changes. In the run-up to the Autumn 2024 Budget, the fate of the PCLS was subject to more than usual speculation, given that substantial extra revenue needed to be found. However, Reeves also left the PCLS unchanged.

A recent response to a Freedom of Information request revealed the public has been taking the risk of an attack on the PCLS seriously:

In the six months to March 2025, over £10.4 billion was drawn as PCLS, more than a third above the level of the previous six months and nearly three-quarters higher than the total drawn in the half year to March 2024.
Over the entire 2024/25 financial year, the amount of PCLS withdrawn was 61% up on 2023/24. However, the number of savers making those withdrawals rose by only 29%, suggesting that the average PCLS taken was almost a quarter larger.

There is some evidence after last year’s Budget that some of those taking their PCLS regretted their actions. HMRC had to remind pension providers that “The payment of a tax-free lump sum cannot be undone.”

At this stage, nobody knows what the Budget will bring (or take away), but if you are thinking of drawing a PCLS now, make sure you also take advice before reaching a final decision.

Tax treatment varies according to individual circumstances and is subject to change. The Financial Conduct Authority does not regulate tax advice.

How long the triple lock?

Mon, 11 Aug 2025 22:48:57 GMT

The future of triple lock increases for the State pension has been called into question by two well-respected groups of economists.

Triple lock increases to the main State pension were introduced from 2011/12, setting the yearly April increase at the greater of:

• The rise in prices to the previous September, now as measured by the Consumer Prices Index (CPI).

• The rise in average earnings (including bonuses) to the previous July.

• 2.5%.

The primary unspoken aim was to gradually raise the level of the State pension, relative to prices and earnings. A secondary goal was to avoid a repetition of the inflation-linked pension increase of just 75p a week in 1999, which attracted considerable political flack.

At the time of the triple lock’s introduction, the Office for Budget Responsibility (OBR) projected that by 2029/30 it would be costing £5.2 billion a year more than if increases had been solely linked to earnings growth. Unfortunately, that proved to be one of the OBR’s more inaccurate projections.

In a daunting document entitled ‘Fiscal Risks and Sustainability Report’, the OBR now projects that the extra cost will be £15.5 billion in 2029/30, almost exactly three times its original figure. The OBR says that its original projection assumed a few years in which the triple lock would outpace earnings. However, the reality was that since the start of the triple lock, the UK has seen more volatile inflation and lower earnings growth than the two decades prior to the triple lock’s introduction (which had guided the OBR assumption). Looking far forward to 2073/74, the uncertainty surrounding what payments will be triggered by the triple lock encouraged the OBR to include three potential cost estimates for pension uprating, with £48 billion in today’s money being the OBR's most likely outcome.

Meanwhile, at the Institute for Fiscal Studies (IFS), economists have produced a pension report that also highlights the high cost of the triple lock. The IFS says “a reasonable estimate … for additional spending on the state pension in 2050 due to the triple lock, above and beyond earnings indexation, would be between £5 billion and £40 billion a year in today’s terms.”

After the problems caused to the government by means-testing the Winter Fuel Payment, the triple lock should be safe for the rest of this Parliament. Thereafter, it would be unwise to assume its prolonged survival in your retirement planning.

Breaking down 2024 inflation

Fri, 07 Feb 2025 23:48:07 GMT

Inflation fell in 2024, dropping to 2.5% from 4.0% in 2023. So why didn’t it feel like that?

At the end of 2022, inflation in the UK, as measured by the Consumer Prices Index (CPI), was 9.2%, having reached a high of 11.1% in the previous October. In 2024, inflation ended the year at 2.5%, with the Bank of England’s target range of around 2%. The US has seen a similar pattern, although its peak was 9.1% in June 2022. Despite annual CPI inflation falling to 2% by the time of the 2024 elections, the cost of living was a major factor in why the incumbent party lost power in both countries.

Those election results were a reminder that the economist’s view and the public’s view of inflation differ greatly. The economist has a strictly mathematical 12-month view, whereas public perceptions are longer term and often more focused on specific items. One way to understand this is to examine some of the detailed 2024 UK inflation annual figures and compare them with the three-year price increases (December 2021–December 2024).

Overall In 2024, CPI inflation was, as we said, 2.6%. However, over the three years, prices had risen in total by 17.4%, equivalent to 5.5% a year.

Food and non-alcoholic beverages This is a high-profile category, which has seen a whiplash pattern of inflation, soaring to 16.8% in 2022 and then plummeting to 2.0% in 2024. Over the three years, price increases totaled 28.7%, equivalent to 8.8% a year. Some items in this category experienced much sharper rises – oils and fats jumped nearly 56%.

Restaurants and Hotels This is the largest category in the CPI, accounting for about one seventh of the total ‘shopping basket’. Over three years it was up 23.2%, while in 2024 it added 3.4%, making it the largest contributing category to 2024 inflation.

Transport If you guess this, you will almost certainly be wrong. Over the three years, transport costs rose in total by just 5.4% and in 2024 they fell remarkably to 0.6%. Most people remember the pump price jumps of the Ukraine war, but forget their unwinding, helped by freezes on fuel duty.

Whichever way you think about inflation, make sure your financial planning takes it into consideration.