Category Archives: Financial Planning

Tax Year End Tips You Can’t Afford to Miss! Part 2

Many people don’t always realise the significance of the end of the tax year until it’s too late. Each and every year, an individual has a set of allowances allocated to them and some of these can be lost if action isn’t taken.

So with the 6th April and the dawn of a new tax year fast approaching, what do you need to consider?

We’ve put together our top 10 considerations – split over two instalments. Here are the second set of 5…

Clients approaching retirement: boost pension saving now before triggering the MPAA

Once you reach retirement age and start to take pension income (but not tax free cash) from a defined contribution pension (over and above your tax free cash allowance), the amount you can pay into a pension and still get tax relief reduces. The amount you can continue to pay into a pension is known as the Money Purchase Annual Allowance (MPAA) – and is currently only £4000 per year.

Anyone approaching retirement age may want to consider boosting their pension pot before April. The full annual pension allowance is £40,000 (or up to a maximum of your net relevant income) and there are also rules that allow any unused allowances from the past three years to be carried forward.

Use ISA allowances

ISAs offer savers valuable protection from income tax and Capital Gains Tax (CGT). The ISA allowance is limited to £20,000 per annum per individual and if it is not used in any given tax year it is lost forever. It is therefore worth considering maximising ISA contributions to the annual limit. Many of our clients have used their allowances over many years, and as a result, they have significant amounts of money held within a tax wrapper which offers a valuable tax shelter. This pot will provide a valuable source of tax free income in retirement.

Maximise personal pension contributions

There are many benefits to contributing to a personal pension, so if you are in a position to be able to do so, making a payment up to the maximum pension allowance will likely serve you well. This is especially true for additional and higher rate taxpayers as the current levels of generous tax relief at 45%, 40% or even 45% may not be around forever.

Carry forward rules

An individual’s level of income can vary from year to year, as can the demands on that income. Therefore, the amount that an individual can contribute to a pension fund may not remain static. Should you have unused allowances from the past 3 years, you may not be aware that you can carry thee forward. The annual allowance has been £40,000 since the 2014/15 tax year. To qualify, you must have had a personal pension arrangement in place in an earlier year, although you don’t have to have contributed.

Investments: take profits from taxable investments using CGT annual allowances to fund income, cash requirements or simply enhance the tax efficiency of your portfolio

The capital gains tax exemption is the most underutilised tax allowance. For tax year 2018/19 individuals can take profit from their investment portfolio of up to £11,700 per annum without paying capital gains tax.

Individuals could use this allowance to supplement their income tax-efficiently. For those who do not require additional income or cash, taking profits within the £11,700 CGT allowance and moving the money into more tax efficient investment vehicles like pensions and ISAs may help shelter gains from capital gains tax in the future, create immediate income tax savings (in the case of pension contributions only) and ultimately make their investment portfolio more tax efficient. This supports the ability to take profits more tax efficiently in the longer term.

The advice is very simple; tax has a major impact on net investment returns in the longer term and  the best way to manage that liability is to ensure that you action a small number of items on your tax year end checklist each year. The cumulative effect of doing so will compound into real monetary savings. For more information on any of the above points, please contact our financial advisers for advice.

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Tax Year End Tips You Can’t Afford to Miss! Part 1

Many people don’t always realise the significance of the end of the tax year until it’s too late. Each and every year, an individual has a set of allowances allocated to them and some of these can be lost if action isn’t taken.

So with the 6th April and the dawn of a new tax year fast approaching, what do you need to consider?

We’ve put together our top 10 considerations – split over two instalments. Here are the first 5…

Business owners: take profits as pension contributions

Using pension contributions in combination with salary and dividends can prove to be an extremely tax efficient way to fund your remuneration package as any contributions made during the company’s accounting year are treated as an expense, so attract corporation tax relief.  Effective rates of extraction can be as low as 15% from the pension, plus you get tax free growth in the meantime.

This approach is of particular advantage to those over age 55 who can access their pension fund with immediate effect should they wish to do so.

Pay employer contributions before corporation tax relief reduces

Another one for business owners – there are plans for Corporation tax, which currently stands at 19%, to reduce to 17% by 2020. Companies may want to consider bringing forward pension funding plans in order to benefit from the current rate of tax relief before the reduction if they have the profits and the cash available.

Employees: sacrifice bonus for an employer pension contribution

If you usually receive an annual bonus, it could be worth your while sacrificing this in favour of an additional pension contribution. Depending on the size of the bonus, taking this approach could result in significant NI contribution savings for both yourself and your employer. Even a relatively small bonus could boost your annual pension savings considerably.

Recover personal allowance

Since 2010, individuals earning in excess of £100,000 per annum have been subject to a tapering of their personal allowance – £11,850 in the current tax year – which reduces by £1 for every £2 that their adjusted net income rises above £100,000. If your earnings are between £100,000 and £123,700, it is worth considering making additional pension contributions, ideally to bring your ‘taxable income’ below the £100,000 threshold, therefore allowing you to regain your full annual tax free personal allowance. This type of planning can result in an effective rate of income tax relief of up to 60%, meaning the net cost of a £23,700 pension contribution could be as little as £9,200.

Recover child benefit

Child Benefit is eroded by a tax charge if the highest earning individual in the household has income of more than £50,000, and is cancelled altogether once their income exceeds £60,000. A pension contribution could reduce income and reverse the tax charge, wiping it out altogether once income falls below £50,000.

For more information on any of the above points, please contact our financial advisers for advice.

The second part of this blog can be viewed here.

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Show Your Finances Some Love…

Making financial decisions and arrangements can feel like a huge weight has been lifted; allowing you to relax and move on with your life. But the fact is that things can and do change and what might have been the right course of action even 12 months ago may no longer be the best thing for your circumstances.

So isn’t it time you showed your finances the love and attention they deserve?

Here are 5 instances that should trigger you to have a heart-to-heart with your financial adviser…

A change in financial circumstances

Many people may aim to set aside a certain amount each month or each year for pension savings, ISAs or investments. But any change in financial circumstances could mean going back to the drawing board on these figures.

For example, if your income is linked to the performance of a business (if you are a Director or if you are self-employed), the amount you are able to contribute into the various pots may fluctuate on an annual basis. This means that what was appropriate to set aside one year may be wildly different just 12 months later.

Receiving a windfall such as a pay rise or bonus may be welcome, but depending on your income, you could fall into a high earning bracket that has the potential to impact your tax-free income allowance, income tax bracket, or eligibility for other allowances, such as Child Benefit.

Getting older!

When weighing up the best financial plan for a client, age and earning capacity are two of the key factors. For example, a client that is within 5 years of retirement would probably want to consider increasing pension contributions if possible, whilst also potentially reducing their exposure to risk across their overall portfolio. However, a different approach altogether would be better for younger clients wanting to get on the housing ladder, who would probably be better paying a bigger proportion into an ISA so the funds are available when they need.

So in short, your needs change with age and it is important to keep reviewing your arrangements so you can be sure you’re on track to meet the goals in your short to mid-term future.

A major change in your life

Taking the step of putting life insurance, income protection or other such policies in place is a really positive step. However, many people fail to amend their policy should their circumstances change. Taking on a bigger or additional mortgage, having children, divorcing or getting married are all circumstances that really warrant a review of your protection arrangements.

Changes in legislation

Sometimes it isn’t a change in your life that renders your existing arrangements unsuitable, but a change in external forces, such as amendments to legislation. Without the guidance of a financial adviser, it can be very easy for changes in legislation to pass you by.

A change in lifestyle and financial goals

As things change within your family set up, you may also experience a change in mindset towards your finances. Regardless of the reason behind the change in attitude, wanting to use your income or savings in a different way can mean shifting things around significantly within your existing setup. Leaving things as they are and maintaining the status quo could mean it takes much longer than necessary for you to reach your goals.

Us Brits don’t always like talking about money. However, failing to allocate enough of your time to your financial affairs can mean you miss significant opportunities to either accumulate wealth or save tax.

Here at Gresham, we love talking about money – and in particular, helping clients maximise their opportunities to get, and stay, on track to attain their financial goals. To speak to one of our financial advisers, please get in touch.

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No More Excuses – Overcoming the Barriers to Financial Planning

It’s all too easy to make excuses in life – whether in relation to exercise, diet or any other aspect of our lives, many of us put things off until tomorrow rather than being disciplined and seizing the moment. The same applies to making financial plans despite the fact that the act of engaging a financial planner, getting your existing portfolio in order and setting out plans for the future, can bring great peace of mind.

Here, we look at 5 of the reasons people avoid taking the step of addressing their financial plans.

Lack of experience 

Our experience throughout life influences what we do – and do not – feel comfortable addressing or tackling. The basis of this is that it is easier to avoid things we perhaps don’t fully understand rather than delving into the unknown.

Rather than letting your lack of experience of dealing with investment propositions such as pensions or getting involved with share portfolios stop you from investing, it is often much more beneficial to contact a financial planner. You probably wouldn’t attempt to tackle an electrical or plumbing task on your own, so why would you do the same with something as important as your financial planning? We all have our own areas of expertise, and putting your hands up and seeking the help of a professional often works out to be the most cost-effective solution.

Choice overload

Once you have taken the decision to commit to long-term financial planning, you may quickly find that you are overwhelmed with the options available to you. Not only do you have to decide how much money to allocate to different forms of savings/investments, you then need to decide which iterations of these to use and the financial institutions that can provide them.

Try not to become bamboozled – if you keep your goals and objectives in mind, you should be able to narrow which choices are most suitable. This is also where consulting a financial adviser can really help – they will be able to help you set out the course of action most suitable for your own circumstances and then help to set everything up on your behalf.

FOFO (Fear of Finding Out)

Standing up and looking at the reality of your situation isn’t always easy to do and consequently, it can be common for people to avoid doing so. As with most things in life, turning a blind eye to your finances will only make things worse in the long run – especially if you are nearing retirement as you will be left with relatively little time to make a significant difference. There are several free-to-use calculator tools available online that give a good idea of the level of savings you will need in retirement.

Finding out where you stand might not be an enjoyable experience, but having knowledge puts you in a position of power, which can only leave you better placed in the long run.

No two sets of financial circumstances are the same so you will only be able to identify the best plan for yourself and your family going forward if you have a firm grip on what you already have in place.

Thinking you don’t have enough

The financial advice industry can seem like another world and people are often under the impression that only the highest earners need to consult a financial planner. Whilst some financial planners work on the basis of a minimum level of investable funds, this shouldn’t act as a barrier to entry – it’s simply the case of finding the right adviser for you. Once monies held in pensions, ISAs, savings and any investments are added up, individuals often have more ‘investable assets’ than they might have thought. It is also worth bearing in mind that financial advisers will often work with families or couples; looking at the combined family wealth rather than what each individual has to their name.

The need for instant gratification

It’s human instinct to have a strong desire for immediate rewards and this has only become more magnified as a result of our dealings in an increasingly digitised world. Unfortunately, financial planning often acts conversely to this psychological preference as it involves a commitment to long-term savings that mean you may not be able to access your money for several years.

Rather than let this put you off altogether, look at what you can afford to set aside and develop a set of shorter term financial goals. These goals could be monthly – for example, setting up a direct debit into an ISA every month, or annual – aiming to make an additional pension contribution of a set amount during the financial year. This isn’t an easy thing to do and may involve making sacrifices elsewhere, but once you start to see the funds accumulating, you will get a sense of gratification and your future self will almost certainly thank you!

If the time has come to ditch the excuses and make a meaningful mark on your financial plans, we’d love to talk to you. Regardless of what stage you are at or whether you already have an existing financial planner, we can help to point you in the right direction. To speak to one of our advisers, please contact us.

 

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New Year’s Resolutions for Your Finances

New Year is a time for goal setting and objective making, as well as those notorious new year’s resolutions! Just as we make plans for other areas of our lives, so too should we consider what improvements we can make to our financial outlook.

Here are some areas you may wish to consider looking at with a view to improving your long-term financial outlook.

Review your spending

One of the reasons people fail to plan is they don’t feel they have enough to work with.

It may seem obvious but a good place to start when making financial changes is to look at your expenditure and identify areas where savings can be made. As well as looking to save on large areas of expenditure, such mortgage deals or household bills, there are also small changes we can make on a daily basis.  For example, the cost of a daily coffee on the way into work (around £2.50 per day, equating to £50 per month), buying lunch every day (around £5, equating to £100 per month) or the cost of a weekly takeaway (around £20, or £80 per month) very quickly add up. Through these changes alone, you could be looking at an annual saving of £2760 per year.  This is not an insignificant sum and certainly provides a good starting point to work from.

Have a plan

The world of pensions and investments can seem complex to those that don’t have experience with the industry – and this can, unfortunately, act as a barrier to entry. It is likely that you will only be able to take your financial affairs so far on your own and even if you once had a plan put in place for you, it is important to review this to ensure it is still suitable for your needs and circumstances. Seeking the advice of a financial adviser often gives people an enormous sense of relief; providing peace of mind that their investments and pensions are being managed and overseen by someone who deals with similar matters day in day out.

Review your pension provisions and contributions

Reviewing your existing pension provisions on a periodic basis is always a worthwhile exercise as it helps ensure they remain competitive and suited to your needs. It’s amazing how often we come across clients that have pensions from previous employers they have simply forgotten about!  However, advice should be taken before any changes are made because contracts may have some features that would be very difficult to replace, such as guaranteed annuity rates, guaranteed growth rates and enhanced tax free cash entitlements to name but a few. These benefits would be lost if you moved your pension to another provider so care must be taken to ensure you know exactly what you have.

Make sensible choices

If you have been tied to heavy expenditure over a sustained period of time –such as a programme of home improvements or funding nursery or school fees – experiencing a reduction in these outgoings can leave you in the mindset of wanting to ‘splash out’. Similarly, if you have a windfall such as a bonus or receive an inheritance, it can be tempting to increase expenditure on short-term extravagances, such as a fancy holiday or a series of treats for the family. Whilst this is human nature, it is important to remember these are also the key opportunities to make a real difference to your long-term planning. By channelling additional funds into your pension rather than flitting them away you will not only benefit from building a larger pension pot, but also the immediate benefit of tax relief.

Maximise allowances

Every individual has a set of allowances they are able to utilise in any tax year. If you are in a position to, you should maximise these allowances each year. For example, the current ISA allowance is £20,000 per year and on the whole, the annual pension allowance for individuals is £40,000 per year.

Review your investments

Let’s face it, most people do not have the time, nor the inclination, to review and analyse their investment portfolios. Yet clearly, this is an area that can deliver great potential returns – or indeed losses – where large sums are invested. There is usually a trigger that first prompts someone to contact us with a view to becoming their financial adviser and sadly, this is sometimes because they have suffered the pain of making a poor investment decision. Although financial advice is difficult to quantify, the likelihood is that having a professional keeping a constant eye on the performance of your investments will ultimately leave you less exposed to losses – therefore leaving you better places to be able to make measurable gains.

Be accountable to yourself

Even if you have a brilliant financial adviser giving you the best advice for your personal circumstances, the only person who can actually make a difference to your long-term financial outlook is you. Take the dawning of the New Year as an opportunity to set goals – write them down and hold yourself accountable to them.

Getting to grips with your financial affairs at the start of a New Year not only ensures you are in a better position in the short term, you could also find that you are better placed to make money from your investments in the longer term.

No single action will solve all your financial plans, but rather putting together a few elements in a plan will combine to have a greater overall effect. Financial changes that lead to even the smallest percentage improvement can build up more quickly than you might think.

 

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