Roger Clark, Head of Wealth Management, and Rebecca Williams, Client Director at Brown Shipley, share their top tips to help you plan for the future you want for yourself and your loved ones.
It is important to review cashflow plans regularly, particularly when you experience any changes in your personal circumstances
1. CONSIDER A CASHFLOW PLAN
As a starting point, we always suggest a cashflow plan. This brings together all of your assets, income and expenditure in one place and acts like a personal balance sheet.
One of the uses of cashflow planning is to look at income sustainability in retirement and help inform a discussion about appropriate levels of investment risk. It is important to review cashflow plans regularly, particularly when you experience any changes in your personal circumstances.
2. INVEST IN ISAs
ISAs were first introduced over 20 years ago and essentially protect savers from Income and Capital Gains Tax on the underlying investments. This year’s ISA allowance is £20,000, so if you have any surplus income you may wish to consider maximising your ISA savings via this route.
3. PRIORITISE YOUR PENSION
If you are enrolled in a workplace pension scheme, you should enquire into the maximum amount your employer can contribute on your behalf and consider raising your own contributions if there is scope for the company to match them. If you receive an annual bonus, it is also a good idea to consider sacrificing some of it into your pension pot; this will save income tax and National Insurance contributions immediately and tax on the income and growth in the pension fund over the longer term.
If there is an unequal division of income, married couples or civil partners, may want to consider equalising investments, to make the most of each partner’s ISA allowance, income tax and capital gains tax allowances and pension contribution limits.
4. SPLIT YOUR INVESTMENT WITH YOUR PARTNER
It is common practice for people to begin thinking about retirement and their longer-term savings plans as they approach their mid-50s. Inheritance Tax, pensions and personal tax allowances can sound complex as savers begin to think about the transfer of wealth to future generations and it is only natural to want the best for your family when you are no longer around.
5. GIFTS TO CHILDREN
Creating tax-efficient funds for children will enhance the investment return. Junior
ISAs (JISAs) offer tax-free income and growth. Establishing a pension for your children provides immediate income tax relief on the contribution and tax-free income and growth for the future.
6. LIFETIME GIFTS
Once you are comfortable that you have sufficient capital and income for your chosen lifestyle, consider lifetime gifts to the next generation. Outright gifts which utilize the small gifts exemption (£250), the annual exemption (£3,000) or are normal gifts from excess income all offer immediate relief from Inheritance Tax.
7. MAKE TIME FOR TRUSTS
Trusts can be complex and costly, but they don’t have to be. Grandparents might consider using a bare trust to gift money to grandchildren which can be used to pay school fees. The advantage of a bare trust is, that as long as the trust hasn’t been funded by parents, the money inside the trust is treated as belonging to the child for tax purposes, allowing them to maximise personal tax allowances and exemptions which may otherwise go unused.
8. INVEST IN VCTs OR AN EIS
Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS) were introduced by the Government to encourage investment into early stage, innovative companies and offer investors a range of tax incentives. They can be of interest to those who pay higher or top rates of tax or who are restricted or not able to make pension contributions. However, these investments are high risk and should be considered carefully as part of a diversified portfolio.
9. DON’T FORGET LIFE ASSURANCE
Life assurance won’t reduce your potential inheritance tax liability but written under trust, will provide your beneficiaries with money to pay the bill. This could avoid your executors having to liquidate assets, like property or investments, in your estate. You need to be comfortable with paying premiums until you die and life assurance is therefore often a long-term commitment.
10. FAMILY INVESTMENT
If you have significant capital, perhaps from the sale of a business, you may want to consider establishing a Family Investment Company (FIC). A FIC is a private investment company whose shareholders are ordinarily family members. The company’s articles of association and memorandum are drafted to fit the needs of the family. A FIC offers certain tax advantages and can be used to pass wealth tax efficiently to the next generation whilst at the same time safeguarding family assets.
Authors
Roger Clark // Head of Wealth Management
Rebecca Williams // Client Director
Hear more from Roger and Rebecca in their latest podcast:
The Potential Implications of COVID-19 on Taxation
Important Information
• Investing puts your capital at risk.
• Tax treatment depends on your individual circumstances and are subject to change.
The information is provided by Brown Shipley for information purposes only. It does not constitute wealth planning or investment advice and must not be treated as a recommendation.
Brown Shipley’s Wealth Planning Service can involve investing your capital, which places it at risk. Investment risk means the value of your investments or any income can fluctuate and you may not get back some, or the entire amount invested. We recommend you seek professional tax advice to understand your personal tax liabilities. This will depend on personal circumstances and the prevailing tax rules, which are subject to change.
Tax planning is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.
This information is issued and approved by Brown Shipley which is a trading name of Brown Shipley & Co Limited, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England and Wales No. 398426. Registered Office: 2 Moorgate, London EC2R 6AG. Brown Shipley's parent company is Quintet Private Bankers (Europe) S.A. which, from Luxembourg, heads a major European network of private bankers.
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