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An Alternative 12 Days of Christmas
- AuthorRichard Eastwood
It’s the season of goodwill to all men and women, even financial advisers and although a pension may not be top of your Christmas wish list here’s a tongue in cheek look at what your financial adviser could be giving you this festive season:
On the first day of Christmas my adviser said to me – Set a Budget.
Many of us overspend at this time of year and this leads to only one place – financial hangover – and you really don’t want that after Christmas! So start creating a budget now.
On the second day of Christmas, my adviser gave to me – a plan for all the family
Maximising your allowances by holding assets in single names and utilising individual and independent taxation.
On the third day of Christmas, my adviser gave to me – an ISA that’s as good as can be
Given the new ISA limits and the ability to hold both cash and equity in the same place, tax leakage on any interest on funds held should be avoided, so make the rainy day fund tax-efficient too.
On the fourth day of Christmas, my adviser gave to me – an allowance passed to spouses tax-free
Ensure your ISA allowance is maximised each year as income and gains are tax free; the ‘transferable allowance on death’ means tax benefits can be extended.
On the fifth day of Christmas, my adviser gave to me – more interest-paying equity
For non and basic rate tax payers, interest payments received inside an ISA are received gross and suffer no further tax, whereas dividend payments are received after a non-reclaimable tax credit (10%), so ensure assets are held efficiently. If holding both fixed interest and equities, from a pure tax perspective utilise the ISA to hold the interest-paying investment first.
On the sixth day of Christmas, my adviser gave to me – gains with less anxiety
For higher (40%) and additional (45%) rate taxpayers, dividends received inside an ISA suffer no further tax. This saving equates to 25% and 36.1% of the net dividend received respectively.
On the seventh day of Christmas, my adviser gave to me – a saving on my CGT
Utilise capital gains each year to maximise the annual exempt amount, meaning £1,980 is saved for non and basic rate taxpayers and £3,080 for higher and additional rate tax payers, as the personal allowance for income tax does not reduce capital gains tax liability.
On the eighth day of Christmas, my adviser gave to me – pensions that are tax-friendly
For non-working individuals (including children), consider making a net pension contribution of £2,880 and them receiving tax relief of £720 from the Government – 2 presents in one.
On the ninth day of Christmas, my adviser gave to me – high earners’ tax-efficiency
For those individuals whose earnings will exceed £100,000, also consider pension contributions to bring income below this threshold and ensure their personal allowance is unaffected. This could provide an effective tax relief rate of 60% on part of the pension contribution.
On the tenth day of Christmas, my adviser said to me – less to pay in IHT
Save IHT by gifting money using tax efficient allowances (e.g. the annual £3,000 per year exempt amount) and maximise children’s and grandchildren’s JISA allowances.
On the eleventh day of Christmas, my adviser said to me – know the risks
Remember Mr Micawber's famous, and oft-quoted, recipe for happiness: "Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
On the twelfth day of Christmas my adviser said to me – keep it simple.
In other words – understand what you own and why, so you can make informed decisions going forward. You would be amazed how many clients forget about company pension pots, it’s reported that up to £15 billion of unclaimed financial assets in the UK lie in old bank accounts, pensions, life assurance and investments. A nice present to yourself in 2019.
Merry Christmas and for a Prosperous New Year call Richard on 0161 785 3500
Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers LLP or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.