Restructuring finances to take advantage of what legally belongs to you

The 2016 TaxAction report has revealed that total tax waste this year could top £4.6 billion. Auto-enrolment has meant that this figure is an improvement on last year, but low ISA usage and poor inheritance tax planning (IHT) is being sighted as the key contributory factor behind the waste. It is without doubt the job of the financial adviser to educate clients on every efficiency available, as well as make sure that the legal requirements are taken care of. It is all about taking advantage of what legally belongs to the client in question rather than letting the taxman get his hands on it.

The tax year end has historically been a frantically busy time for the advice sector. There has been an inevitable surge in client activity and this is attributed to individuals wanting to take advantage of last minute tax efficient solutions, just before the looming April 4th deadline.

Recently, however, the avalanche of change impacting the sector has warranted a more holistic year- round approach to financial advice. Clients need to be continually updated throughout the year if they are to take full advantage of the tax breaks associated to even the simplest financial products such as ISAs and pensions. Technology has also played a large part in improving the speed and efficiency of the application process, helping to avoid those last minute year end panics.

Budget announcements are now sighted as the key trigger for financial reviews. 2015 saw Budget announcements made in March, July, and November, all of which carried significant impact to individual personal wealth. The dates associated to when the changes come into full effect need to be monitored carefully to ensure no deadlines are missed.

The key changes announced in recent budgets include:

  • March 2015: The lifetime allowance for pension savings that can be accumulated free of tax will be cut from £1.25m to £1m from April 2016.

  • April 2015: Revolutionary pension freedoms introduced.

  • July 2015: Individuals earning £150,000+ PA to have tax-free pensions contributions allowance reduced.

  • November 2015: government tax raid on buy-to-let.

  • March 2016: Cuts expected on higher rate tax relief on pensions for high earner.

This constant barrage of change, largely imposed by the chancellor’s brief to reduce the deficit, has developed a constantly challenging landscape for wealth management. Never has it been so important to roll with the punches, plan ahead and restructure finances in a way that will protect savers from the impact of any changes.

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