The world of finances and financial planning can be extremely difficult to navigate, and it requires an ongoing commitment. If you aim to achieve your financial goals and ensure that your wealth is sufficiently managed, conducting a thorough wealth review is essential.
Whether you own a business or not, a wealth review is important to assess your situation. The goal of wealth management is to help you attain financial security, grow and protect your wealth for the future, while ensuring it is allocated according to your preferences. So how do you do this?
To try and simplify this complex topic, we have compiled 6 key top tips for reviewing your wealth:
Top tip number 1:
Choose the Right Tax-Efficient Investment Structures
When reviewing your finances you want to ensure that your hard earned wealth is placed into the most suitable structure that will in essence limit your tax liabilities. Having a tax efficient structure such as a pension plan can help to keep most of your investments in one place whilst providing protection which legitimately helps you avoid paying too much tax.
So how can you be tax efficient and choose the right structure? Below we will briefly explain some of the different allowances and structures that can be key elements of a personalised tax-efficient wealth plan.
Dividend allowance
Individuals have a dividend allowance of £1,000 (2023/24 tax year) to set against any dividend income, with no tax being due on this amount.
Pension allowance
Qualifying Pension contributions are tax relievable at the saver’s marginal income tax rate. Currently the annual allowance is capped at £60,000 (the tax year 2023/2024), although a lower limit of £10,000 may apply if you have already started accessing your pension.
Personal allowance
Each of us have a tax-free income tax personal allowance of up to £12,570 (2023/2024 tax year), which can be bolstered by the Personal Savings Allowance.
Stocks and Shares ISA
(ISAs) otherwise known as Individual Savings Accounts are one of the most tax-efficient investments available. You can invest up to £20,000 per tax year (2023/24 ISA allowance) into an ISA. Normally assets that are within an ISA are not subject to income tax or capital gains tax.
Inheritance Tax IHT
Certain investments have Inheritance tax benefits. You should be aware that holding the qualifying investment at death may allow IHT exempt assets to be passed to beneficiaries.
Capital gains tax exemption
Capital gains (gains arising from disposals of certain capital assets) of up to £6,000 are exempt from tax in the 2023/24 tax year (To be halved in 2024/25)
You should note that no wealth plan is the exact same and your overall goal with it is to grow, manage, protect and pass on your wealth through strategic financial planning. This review and careful selection is always best to be carried out with an advisor who knows what options are best for you and your wealth at the time and can easily explain how your wealth may be affected by each.
Top tip number 2:
Stay Informed About Legislative Changes
Like everything in life, there is always changes and updates to legislation. It’s good to note that the government very often update the legislation that affects personal finance and can alter your originally thought out plan.
We highly recommend that if you haven’t reviewed your financial plan in a couple years your plan may not be as tax efficient or protected as you may think. Changes in legislation has the power to affect when you may be able to access your pension pot or even affect the tax allowances you were hoping to receive. By consistently reviewing your financial plan it places you in a much better and safer position to respond to potential opportunities and also asses any risks in greater detail.
Taking legislation changes into account will help you make the most of your assets and should be revisited annually to keep updated.
Top tip number 3:
Adjust Plans after Major Life Changes
It goes without saying that throughout our lives we all experience big life changes that will have an effect on our wealth. You can’t always plan for big life changes and in some circumstances they will be completely unplanned and may come as a shock. Big life changes such as getting divorced, having children, a death in the family or even coming into a big sum of money can all affect your estate planning and cause for huge changes to be made.
Big Life events will often change your financial situation and can even alter your personal priorities. Because of this we recommend that after any life event you should always go back to your plan and adapt or change it accordingly. Certainly updating Wills is essential.
A financial advisor will always be able to advise you on the best way to adapt your wealth plan to factor in the new changes in your life and finances. Don’t leave things to last minute before it’s too late and run the risk of not protecting your wealth in the way you want to.
Top tip number 4:
Work out your annual spending with a financial advisor
Visualising your finances provides insights into how your plan impacts assets and income. As circumstances evolve, review and update your plan to maintain relevance. Establishing your annual spending requirements guides your investment strategy. Answering “How much do I need to spend in a year?” impacts savings, investment targets, and retirement timing. Collaborate with a financial advisor to accurately calculate spending needs.
As a rule of thumb, most people should be looking to save between 20% and 30% of their income, to build for a comfortable retirement once they stop working.
Top tip number 5:
Review your current and future lifestyle
Your current lifestyle may look very different when you come to retirement age and maintaining the same lifestyle can be quite challenging depending on your circumstances. We all want to live long enough to reach a retirement date (which is of course not a guarantee), but we don’t want to have to keep working past this because we haven’t made adequate provision to fund our remaining years.
By reviewing your future lifestyle and thinking about what type of life you’d like to lead at retirement will help your financial advisor to understand what you’d like to achieve and also which areas you are most willing to make sacrifices in.
Reviewing your wealth at its current stage helps to give you a good starting point for how you are going to prepare for your later years and the sooner you start thinking about it the better prepared you’ll be for when the time comes.
Top tip number 6:
Understand risk scenarios and Wealth growth requirements
When you sit down with your advisor to discuss your finances be prepared to explain what your wealth growth requirements are to help give the advisor an idea of what type of risk level your finances will fall under.
Any advisor is obligated to explain to you in detail what the risk scenarios could be for your investment. Before you go ahead and make any decisions, the advisor should educate you further on the investment you’re looking to make so that you have all the necessary information before you jump straight into making a decision for your wealth. Never underestimate the risks that can come with any investment and always seek advice on the best transactions to make for your situation and wealth.
If your 25 and think you will need more wealth in retirement, you can take bigger investment risks than someone in their 60’s can. If the markets drop or investments fail, a 25 year old has time to make up the short fall.
We see two common scenarios when we talk to clients nearing a suitable retirement date…
- Those that have lived well, spend money liberally and saved poorly. Many of these face a painful shift in their retirement lifestyles, or many more years of work than they really want.
- Wealthy clients that have invested carefully, planned judiciously and are able to enjoy the fruits of many years of hard work. (Although we still see many of these work longer than needed, either because they are not clear enough on their wealth and retirement affordability, of they have no idea what to spend their time on when work ends!)
These 6 top tips offer guidance for reviewing your wealth. Remember, consulting a financial advisor is crucial for navigating complexities and ensuring optimal strategies. Mark Holt & Co are dependable advisors for reviewing your wealth strategy. Call us today on 01752 220979 to begin reviewing your wealth and give yourself that piece of mind.
Mark Holt & Co Group
November 2023
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