Reflecting on client meetings over the past few months I have been considering the significant benefits provided to clients who have created tax efficient financial plans.  Financial planning is the foundation for everything that we do and although investment management is just as important, if you do not have a sound financial plan the benefits of compounded investment returns is eroded.  In many cases this does not become visible for a number of years but typically at retirement when we look to generate income from the investments built up or in a worst-case scenario on our death the financial plan that has been created plays a significant part in protecting and maintaining wealth for ourselves and beneficiaries.

Define your financial objectives

What do you want to achieve? Defining your objectives is always the starting point for creating a financial plan.  It seems simple but requires thought and discussion and a clients reflection following a meeting with us is often what crystalises the process.

Make a will and have a power of attorney

Simply put, a Will directs who you wish to pass your estate to on your death.  Without a Will the position becomes complicated and keeping a Will up to date and relevant should be an annual consideration.   Furthermore there are inheritance tax consequences created when Wills are not properly structured which could undermine other plans you have in place.

Likewise a Power of Attorney is vital.  We are more likely to lose mental capacity as we age whether through accident (at any time) or health reasons.  Having a Power of Attorney in place for both our finances and health will save a huge amount of time and money if ever the need arises.

Retain enough cash for a rainy day

Make sure you retain an accessible amount of cash to cover short term (6 months) expenditure should your circumstances change.  This will be a different amount for everyone, but with the increase in Bank of England base rates, holding cash has become more attractive and we can assist to make the most of this.

Fund pensions

The tax relief available on pension contributions are very attractive and the last budget increased contribution allowances further still.  Pension funds grow tax free and from age 55, a quarter of your pension pot can be taken tax free (subject to the Lifetime allowance). In the event of death (before age 75) your pension pot is payable free of tax to your beneficiaries and on death after age 75 payable to beneficiaries less their rate of income tax, but importantly outside of your estate for inheritance tax.  Business contributions can be paid from profits before tax and your pension scheme can buy commercial property and lease it back to your business. This is the best tax savings deal out there and everyone should have one.

Utilise all relevant investment tax allowances available

There are a number of other tax incentivised investments available beyond pensions.  Individual Savings Accounts (ISAs) are the most well know and applicable to everyone with tax free growth and income benefits.  However, like pensions some other structures such as Venture Capital Trusts (VCT) and Enterprise Investment Schemes (EIS) provide upfront tax relief and ongoing tax advantages. That said VCT and EIS are investments which we categorise as high risk , should only form a small proportion of your wealth and therefore advice is always required. Offshore Bonds are another tax efficient structure particularly for lump sum investment and for those concerned with inheritance tax.

As with many things in life starting the planning process early goes a long way to creating the best outcome.  That said it is never too late to start and everyone could benefit from a bespoke financial plan aimed at meeting your objectives.  Some of the above are easy to put in place, others require a bit more consideration.  We are always here to assist and help you enjoy the journey.