Antoine de Saint-Exupery said “A goal without a plan
is just a wish”, which is particularly relevant when we consider our financial goals and aspirations. John
Williams, who recently joined us as head of wealth
planning, highlights three areas where wealth planning can be particularly important.
It is very easy to accumulate numerous pension pots during your career, but it can be challenging to keep track of what they are worth, how they are invested and how they are performing. Consolidating your plans into a self-invested personal pension (SIPP), for example, may be an answer. It also allows you to appoint an investment manager to manage your pension alongside your other investments. There have been a lot of changes to UK pension regulations in recent years, and you should pay careful attention to your annual allowance (the maximum contribution each year while still receiving tax relief) and your lifetime allowance (the total amount accumulated over your lifetime while still enjoying the full tax benefits).
The lifetime allowance is currently £1,073,000 (for the tax year 2020/21). Going over this allowance generally means a tax charge on the excess, which can become payable when you take a lump sum (55%) or income (25%) from your pension fund, or transfer it overseas, or reach age 75 with unused pension benefits. However, there may be an opportunity to go above the allowance if your pension was worth more than the lifetime allowance when it was introduced in April 2016.
As well as providing for an income in retirement, pensions can be used to pass on wealth.
A review of your overall wealth as you approach retirement can help you determine the order by which income should be withdrawn from your various financial pots. The restrictions on pension contributions and lifetime savings also mean it is important to take a holistic approach to retirement planning. Traditional pensions should work alongside other investments including ISAs and venture capital trusts (VCTs), as well as property and other personal investment portfolios.
The returning expatriate
Expatriates returning to the UK need to plan ahead and ensure the move is seamless and tax efficient. Whatever your reasons for returning, the decision will have ramifications for your financial and personal affairs.
Your financial situation as an expatriate may no longer be appropriate when you become a UK tax resident, so a review of your financial affairs and the potential implications is vital, not least as the tax residency may kick in a lot sooner than you think.
For example, if you spend time in the UK preparing for your permanent return, you could accidentally bring forward the start date of your UK tax residence status. Residency can be triggered after just 16 days in the UK, if you have been a non-UK resident for less than three years. Otherwise, you may become resident after 46 days of a tax year, or 30 days if you are staying in a UK property that is considered to be your main home.
In addition, you should consider selling any assets that have risen in value while you were abroad with a view to ‘crystallising’ those gains before you become UK tax resident.
Tax is, however, just one consideration. Other factors such as to how to fund your UK lifestyle, buy UK property, manage succession planning, children’s education and healthcare can all be equally important.
Ensuring your loved ones can benefit from your wealth is a priority for most clients, whether it is helping your children get on the property ladder, or paying for your grandchildren’s education.
These choices also raise questions about how you can pass on your wealth as early as possible and minimise the inheritance tax burden. While there are a number of ways to achieve this, the most straightforward is an outright gift. However, you may be reluctant to gift while the recipients are still young, especially as the gift could be subject to future claims due to divorce or a failed business venture.
In this situation, careful planning can allow you to retain some control as to how the gift is invested and how it should benefit your family. A good UK-focused example of this is to set up a trust. Family investment companies and family limited partnerships can also be used.
The first step in the process should always be to review your will. It needs to reflect your current personal and family circumstances, as well as who you want to benefit and how. If property is owned in another country, it may be necessary to establish another will in that jurisdiction, not least as different allowances and exemptions and reliefs have to be considered. Certain countries – such as France and Italy – have forced heirship rules where succession laws define specific rights to specific individuals, which can be restrictive. Another option to consider is whether it makes sense to use life insurance to pay for any tax due.
Our wealth planning service uses technology to see how you might plan your cash-flow. It helps you take a step back and take a more strategic, long-term view of your situation. It adds focus to your major financial decisions, such as how much wealth you need to retire; how you would respond to extreme market shocks; when you could afford to buy the dream holiday home or gift assets to a charitable trust to build a family legacy. Just get in touch and we can set up a meeting to start a conversation.
We hope you enjoyed this article
John is a senior wealth planning professional with over 25 years of advisory and management experience, working with UK and international clients. He joined Nedbank Private Wealth from Credit Suisse UK in June 2019 and heads up the wealth planning proposition. John works with clients and their families, in tandem with their professional advisers, to ensure they have a clear financial plan in place to achieve their financial objectives.