Financial planning: Five in 5
Welcome to this issue of Financial Planning Five in 5 – your quick round-up of five key financial insights in just five minutes, designed to keep you informed and ahead.
With interest rates falling, we explore alternative lending options to unlock capital, including equity release, term finance and Lombard lending. Rising employer NI costs highlight the value of pension salary exchange for boosting savings and take-home pay. For cash holders, a cash management platform can improve returns and Financial Services Compensation Scheme (FSCS) protection. We also cover inheritance tax planning using discounted gift and loan trusts and finally, outline key business relief changes from April 2026.
Lending solutions in a changing interest rate environment
With the Bank of England base rate now at 4.25% and continuing to fall, it’s not just traditional mortgages seeing reduced pressure. A broad range of lending options are becoming increasingly competitive, allowing borrowers to explore alternative options for accessing capital.
1. Equity release – unlocking property wealth in later life
For homeowners aged 55 and over, equity release can offer access to tax-free cash tied up in their home without selling or moving. Funds are often used to support lifestyle expenditure, meet care costs or make gifts and mitigate inheritance tax.
Lifetime mortgages are the most popular option, where interest is either paid monthly or rolled up and repaid from the estate upon death or moving into long-term care.
The alternative option is a home reversion plan, which involves selling part or all of the property for a lump sum. While this option exists, it tends to be less flexible, irreversible and often more costly, making it less suitable for most clients.
2. Term finance – fast, flexible short-term funding
Term finance is a form of short-term, interest-only loan secured against property – most commonly in the form of a bridging loan, used to bridge the gap between buying a new property and selling an existing one. So why consider term finance over a mortgage?
- Speed: Funds can be arranged in weeks if not days, ideal for auctions, chain breaks or time-sensitive capital needs.
- Flexibility: No income evidence required with lending secured against the property.
- Term: Available from one to 60 months, with full repayment allowed anytime without exist penalties.
- Cost-effective: Interest rates from as low as 0.55% per month.
- Exit strategy: Typically repaid via property sales, crystalising investments or incoming funds.
3. Lombard lending – liquidity without liquidation
Lombard lending enables access to capital by borrowing against investment portfolios, such as ISAs, general investment accounts or investment bonds, without the need to sell.
Structured as a revolving credit facility, you’re able to draw, repay and reborrow up to a pre-agreed limit, typically 50% of the portfolio’s value. Interest is only charged on the amount drawn, currently at a margin of 1.95% – 3.25% above base rate (4.25% at the time of writing).
Some providers now offer custodian-friendly solutions, allowing investments to remain with their existing investment platform and/or provider, avoiding crystallisation of gains, tax implications and counterparty risk.
Pension salary exchange
If you are a member of your employer’s workplace pension scheme and they offer pension salary exchange but you are not participating, you should consider it. You will benefit from higher monthly take-home pay due to the employee NI savings. You will also receive immediate tax relief at your highest marginal rate (20%, 40% or 45% ) and, if your employer passes back some or all of their NI savings, higher monthly pension contributions, which will result in a bigger pension pot at retirement.
If your employer doesn’t offer pension salary exchange, speak to them about introducing pension salary exchange, as it will benefit both them and their employees.
Under a pension salary exchange arrangement, employees agree to reduce their salary by an amount equivalent to their employee contribution in exchange for an additional employer contribution. Paying the pension contributions in this way reduces the amount of NI both the employer and employee pays.
If the company pension scheme operates the relief-at-source method of tax relief, an additional benefit of pension salary exchange is that higher and additional-rate taxpayers receive tax relief at their highest marginal rate immediately and do not need to reclaim their additional tax relief back via their self-assessment each year.
Here is an illustrated example based on an individual earning a pensionable salary of £40,000 p.a. and paying a 5% employee contribution:
Figures based on 2025/26 tax year and tax and NI liabilities depend on several variables and may differ from the figures shown
In the above example the employer would also save £300 p.a. in NI contributions. Some employers pass back these savings as an additional pension contribution, which will help you build up a bigger pension pot at retirement.
Cash management platform
Inflation erodes the value of money over time – if your savings earn less interest than the rate of inflation, your real (inflation-adjusted) wealth is decreasing. A higher interest rate helps offset inflation and preserves the real value of your money while maintaining liquidity. Earning more interest on your cash savings can help you reach short-term goals faster like building an emergency fund, saving for a house deposit or funding a large purchase. However, administration is involved in setting up accounts for the best rate at that time.
A cash management platform allows you to open one single account but take advantage of a range of accounts. Sometimes, the best interest rates can also have a maximum deposit level. This can leave you with several bank accounts, which may be competitive at the time, or funds just in one account for ease, missing out on interest. Variable and fixed term account interest rates update constantly but you can easily switch around your cash to the best interest rate at any time through an online cash management account, as you can view your cash across multiple banks from a single hub account.
Spreading money across multiple bank accounts is beneficial because the Financial Services Compensation Scheme (FSCS) protects up to £85,000 per person, per authorised bank or banking group. By using accounts from different banking groups, you ensure that each deposit is separately covered up to the £85,000 limit if a bank fails. The benefit of a cash management platform is that you don’t need to sign up to every single underlying bank account.
Having a sufficient level of cash is essential to good financial planning. This means there is a buffer for when you need it, and finding attractive rates ensures your cash is working harder for you while also benefiting from FSCS protection and avoiding exposure to investment risk
Inheritance tax planning: discounted loan trusts and discounted gift trusts
Inheritance tax (IHT) planning is a crucial aspect of wealth management, ensuring that individuals can pass on their assets efficiently while minimising tax liabilities. Since pensions pots will be under the scope of IHT from April 2027, individuals may be looking for alternative ways to shelter their wealth from IHT. Two popular estate planning tools – discounted gift trusts (DGTs) and discounted loan trusts (DLTs) – offer significant IHT benefits while allowing individuals to retain access to their capital.
Discounted gift trusts
A DGT allows an individual (the settlor) to make a gift into trust while retaining the right to receive regular payments for life. The key IHT advantage is that the value of the gift is discounted by the estimated value of these retained payments, reducing the taxable estate immediately. Its benefits include:
- Immediate IHT reduction: The discounted portion of the gift is considered outside the settlor’s estate from the outset.
- Seven-year rule: If the settlor survives for seven years after making the gift, the remaining trust assets are fully exempt from IHT.
- No gift with reservation: Since the settlor only retains the right to fixed payments and not the full control of the trust assets, the arrangement avoids the “gift with reservation” rules.
Discounted loan trusts
A DLT works differently from a DGT. Instead of making an outright gift, the settlor lends money to the trust, which is then invested. The settlor retains the right to receive loan repayments but the growth on the invested funds remains outside their estate. Its benefits include:
- IHT efficiency: The loan remains part of the settlor’s estate but any investment growth within the trust is immediately outside the estate for IHT purposes.
- Flexible access: The settlor can receive loan repayments over time, providing financial security while still reducing their taxable estate.
- No immediate IHT charge: Unlike outright gifts, there is no immediate IHT charge when setting up a DLT.
Choosing the right trust
Both DGTs and DLTs offer valuable IHT benefits but the choice depends on individual circumstances. Those who can afford to give away capital while retaining fixed payments may benefit from a DGT, while individuals who need more flexibility in accessing their funds may prefer a DLT.
Business relief
On 6 April 2026, the UK government will implement significant reforms to business property relief (BPR), which will have a major impact on inheritance tax (IHT) planning, particularly for business owners.
Currently, BPR can offer up to 100% IHT relief on qualifying assets, removing them from the IHT calculation. However, under the new rules, this full relief will be capped at £1 million per individual or trust. This means that the first £1 million of qualifying business or agricultural property will still receive 100% relief but any value above that threshold will only qualify for 50% relief. In other words, there will be an effective tax liability of £200,000 on death for every additional £1 million of qualifying assets above the allowance.
Importantly, any unused BPR allowance is not transferable to a surviving spouse (unlike the nil-rate band or residence nil-rate band), so careful planning and consideration is required.
Different strategies are appropriate at different life stages of a business owner and need regular review, particularly pre- and post-business sale. Whilst you are building the business, the most effective way of safeguarding your family wealth is to obtain life assurance policies. Where there are multiple shareholders and families involved, it also allows the remaining shareholders to retain control of the business, minimising dispute and disruption, whilst providing financial security to the deceased’s family.
Post-business sale, the proceeds will immediately be subject to potential IHT of 40% – more than doubling the IHT liability as soon as the money is received. There are business relief qualifying investments that the proceeds can be invested in which would allow for immediate exemption if reinvested within three years of the business sale. Financial advice is required to assess whether these investments are suitable for your personal circumstances.
