Sound financial planning & tax efficiencies – the perfect match

“Planning is bringing the future into the present, so that you can do something about it now”. This quote by author Alan Lakein succinctly describes the benefits of financial planning. When asked, many of us can conjure up the ideal end destination; the oft-visualised round-the-world trip, retirement at 60, or that true feeling of financial independence. Yet, when we consider the route, the road that will get us to the goal – things become less clear.

This is often the situation for our clients when they first contact us. They have worked hard to build their wealth, and know where they wish to go. Yet, how do they get there? How to make best use of one’s resources, capitalise on available allowances and maximise tax-efficiency? It is not straightforward, with a myriad of tax-traps and continually changing pension legislation, to name but two challenges. Nor is it a one-off transaction – it requires adherence to a robust, stress-tested financial plan, with ongoing expert advice.

However, it can be a very rewarding experience. The peace of mind attained from knowing exactly where you stand, removing complexity from your finances and bringing the future into sight is often an enlightening and comforting process.

So how do you get there? Experience has taught us that a good place to start is to gain a combination of expert tax advice and sound financial planning, delivered in simple, straightforward language.

To showcase this approach in action a recent example involves successful executive in the finance sector, married with two children and seeking some advice on a number of tax issues. The family had a mixture of different assets alongside a rental property, which previously had been their main home. The client was concerned about potential tax consequences for his pension funding, being a member of a final salary pension scheme.

Recent changes in the buy-to-let sector, such as the increased capital gains tax on second properties and the reduction in available tax-relief for mortgage repayments had also caused frustration in this case. Over the course of several meetings with our specialist tax team, a variety of actions were implemented; assets transferred between husband and wife, lettings relief was claimed on the sale of the second property, and unused allowance made further pension contributions possible. They managed to improve their tax-efficiency and reduce their annual tax bill by approximately £60,000.

Following a sudden loss of employment, the families’ circumstances changed dramatically. Yes, there was a significant redundancy award, but now minus the ongoing security of a salary. They needed specific financial planning advice – a conversation about their goals and their newfound situation.

In this particular example, the clients were quite close to their intended retirement age already, so the objective was to evaluate whether or not they could bring their retirement forward – could they walk away from work altogether? It is often the case that we are unsure when we will retire, but we would very much like to know when we could afford to. This is often referred to as your financial independence age. Imagine working in the knowledge that you are there because you enjoy it, not because it is a financial necessity. That brings a new, more pleasant approach to the ‘9-5’.

I digress. To return to the specific client example in question, we considered their potential retirement in detail; what would they like to do with their time, what holidays would they like to take? We then explore the numbers; how much are we spending, what are the pension options, what other assets do we have, etc. With these details we then present back to the clients, offering options and discussing how we can help them. In this case, husband and wife wanted to know they would always have the income they required when they chose to retire, with a bit left to pass to the children.

These ‘presentation’ meetings are very flexible and enjoyable – we can alter the timing of major life events such as retirement or marriage, and robustly stress-test the plan. For example, what impact would a stock-market crash would have on their investments and thus, potentially their income?

The pension situation proved key. Working with our tax colleagues to maximise the funding, the pension was then transferred into a more flexible arrangement, allowing the client to access funds earlier than otherwise possible. This initial recommendation evolved into the holistic management of other assets, which will generate sustainable, tax-efficient income throughout the client’s retirement. Perhaps more importantly, the client now has a long-term partner in us, an ongoing trusted relationship and the peace of mind to know that the finances “are well under control”.

This is just one specific example which showcases the benefits of an integrated financial advice and tax planning approach. Regardless of individual circumstances, the core aim of engaging with professional advisors in this area should always remain the same – to protect the value you have worked hard to generate. To do this in the most optimal way will require not only an advisor who is an expert in their field, that should be a given, but someone who cares about yours and your family’s goals, and who can utilise that expertise to plan the most efficient approach to get you there. And, as the example used here has demonstrated, this will likely involve both financial planning and tax advisory expertise. After all, successful financial planning is a blend of a focussed investment strategy and a balanced risk and return, wrapped around a set of core objectives, within a given timeframe, and placed in the most efficient tax environment. As financial planning and tax advice are two separate, albeit intertwined areas, this can potentially mean that two different specialist advisors are required. And if you don’t want the additional hassle of having a number of advisors – it can pay to engage with a team who offer both financial advice and tax planning under the same roof.