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You might imagine that managing your family’s finances well takes complex strategies and an intimate knowledge of the UK tax system and global investment landscape. In fact, nothing could be further from the truth. In time-honoured tradition, it’s sticking to basic principles that yields the best results.
Note the words of Warren Buffett, the legendary US investor. Using a baseball analogy, he told a HBO TV documentary: “The trick in investing is to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot.” While investing is not the same as managing your finances, the principle remains the same: take advantage of the easy strikes.
In the UK, as in many other countries, individuals’ personal finances have been squeezed for many years by the combination of higher taxes and the recent spike in inflation. That’s only likely to get worse as the new Labour government seeks to balance its ambitious spending plans with tax revenues.
For this reason, it’s more important than ever to remember the basic principles that can make a significant difference. Above all, we suggest the following top tips to help you future-proof your family finances as far as is possible.
1. PLAN YOUR CASHFLOW
As a starting point, we always recommend planning your cashflows. Doing so brings all of your assets, income and expenditure together in one place: it acts like a personal balance sheet.
Notably, cashflow planning helps you to picture how you’ll sustain income in retirement and informs discussions about the appropriate levels of investment risk. It’s important to review cashflow plans regularly, particularly if your personal circumstances change.
2. SAVE THROUGH ISAS
First introduced in 1999, the individual savings account (known as ISA) is a wrapper that shields your investments from income and capital gains tax. The 2024/25 ISA allowance is £20,000, meaning that you can place up to this amount in an ISA. If you have any spare income you may wish to consider doing so.
3. PRIORITISE YOUR PENSION
Pensions are among the most tax-efficient means of saving. If you’re enrolled in a workplace pension scheme, you should consider raising your own contributions if there’s scope for your employer to match them. If you receive an annual bonus, why not put some of it into your pension? This will save on income tax and National Insurance contributions while building your future pension.
What’s more, if you earn more than your partner you may want to consider paying into his or her pension to make the most of pension contribution limits.
4. THINK ABOUT SUCCESSION
When people approach their mid-50s, it’s common to think about retirement, longer-term saving and what to leave your family. While your affairs may be complex, there are relatively straightforward inheritance tax, pension and personal tax allowances that can simplify matters. It’s only natural for you to want the best for your family when you’re no longer around.
5. DO YOU KNOW ABOUT INVESTMENT BONDS?
Many people have never heard of investment bonds but they can be useful for mitigating tax liabilities at a time when capital gains tax allowances have been reduced (£3,000 for 2024/25), as has the dividend allowance (£500 for 2024/25). Using onshore or offshore investment bonds can help control the timing of your liabilities and potentially reduce them.
6. MAKE LIFETIME GIFTS
Once you have enough capital and income to live comfortably, consider lifetime gifts to children or grandchildren. Outright gifts can fall within the small gifts exemption (£250 a year), the annual exemption (£3,000 a year), or are normal gifts from excess income. All offer immediate relief from inheritance tax.
7. TAKE TIME FOR TRUSTS
Trusts can be complex and costly, but don’t have to be. Grandparents can set up a bare trust to gift money to grandchildren that can pay school fees. As long as the trust hasn’t been funded by parents, the money inside is treated as belonging to the child for tax purposes. This maximises personal tax allowances and exemptions.
8. INVEST IN A VCT OR AN EIS
Venture capital trusts (VCTs) and enterprise investment schemes (EISs) were introduced by government to encourage investment into early stage, innovative companies. They offer investors a range of tax incentives, which are especially useful for higher rate tax payers or those who can’t make pension contributions. However, these investments are high risk.
9. DON’T FORGET LIFE ASSURANCE
Life assurance can provide your beneficiaries with money to pay the inheritance tax bill, if written under trust. This could mean your executors don’t have to sell assets, like property or investments. But you must be comfortable with paying the policy’s premiums until you die.
10. CONSIDER 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). Your FIC’s shareholders would be family members, with its articles of association and memorandum drafted to fit their needs. A FIC can pass wealth tax-efficiently to the next generation while safeguarding family assets.
FOR FURTHER RECOMMENDATIONS…
There can be little doubt that the tax allowances underlying these top tips will change on a regular basis, especially following the Autumn 2024 budget announcement. Even so, sticking to basic principles and the related tips should be the foundations for managing your finances.
Get in touch with a Brown Shipley Client Advisor to learn more and discover how you can adapt your plans to any changes introduced in government budgets.
Start the conversation. We’re here to listen.
Important Information
Tax planning is not regulated by the Financial Conduct Authority or the Prudential Regulation Authority.
To become a client of Brown Shipley, clients require £1m in investable assets.
