How tax planning can pay for itself

Adrian Howard
July 5, 2022

Tax planning may well feel like a chore, but in the long term, working tax considerations into your financial planning will not only make you better off, it can also improve your wellbeing.

  • Tax planning might come low on your to-do list, however it can not only save you money but improve your financial wellbeing.
  • Financial advisers are experts in complex tax rules, so it pays to get professional help with planning.
  • While key life moments might prompt you to take advice, it’s a good idea to have a regular conversation with your adviser to ensure your finances continue to be run in the most tax-efficient way.

It’s not often you’ll find ‘talk to my financial adviser about tax’ at the top of someone’s to-do list. If it’s there at all, it’s likely right at the bottom, somewhere below clearing out the shed or scrubbing the downstairs loo.

Tax planning may well feel like a chore, but in the long term, working tax considerations into your financial planning will not only make you better off, it can also improve your wellbeing.

But while anyone is able to clean a bathroom, tax planning is one chore where it pays to get some professional help. The UK tax system is complex, and there are more than 1,000 different rules and regulations. Applying those properly requires expert knowledge. The good news, however, is that tax advice should quickly pay for itself.

It is very easy to pay too much tax – and you will, if you aren’t aware of the allowances and reliefs that you can take advantage of.

Making sense of the rules

Tax allowances aren’t the same as tax loopholes. They have been put in place to help people save and plan for their futures, so it makes absolute sense to take advantage of them if you can. And tax planning is relevant to all your financial goals, whether you’re looking at short- and medium-term savings plans; retirement saving with pensions; or estate planning, making sure you pass on the inheritance you want to your loved ones.

You’re probably aware that putting your money into a cash or stocks and shares ISA will mean you don’t pay tax when you take it out at the other end. However, you may not be quite so aware of the tax rules around pension saving. In addition to tax relief boosting your contributions, your money will be sheltered from tax as it grows.

Tax rules around pensions become more complicated when you take money out – and following the introduction of the pension freedoms in 2015, there are plenty of pitfalls for the uninitiated. From getting stung by emergency tax to triggering the money-purchase annual allowance and reducing the amount you can pay into your pension if you make a withdrawal, it’s easy to get caught out.

Approaching retirement is another great example of where your St. James's Place adviser can really add value. By utilising their expertise, they will be able to navigate the tax minefield and help you structure your retirement income – using your pensions, ISAs and any other assets – to manage the amount of tax you pay.

As you get older, you are also likely to start thinking about how you will pass on your wealth when you die. Inheritance Tax rules are complex; an adviser can discuss your options with you, from minimising tax by taking advantage of gifting allowances, to the use of certain trusts.

There are other triggers that may make tax advice worthwhile. As your career progresses and you start earning more, perhaps you are getting bigger bonuses or share options. It can also be particularly helpful if you are the owner of a small business. What, for example, is the best way of extracting value from your company? How can you pay yourself in the most tax-effective way?

Many self-employed individuals will have a lumpy income pattern, with some months or years being better than others. That can make pension saving trickier, but if you’re currently enjoying a good run, you might be able to take advantage of carry-forward rules and really give your pension a boost.

An ongoing conversation

Certain life stages or life events might prompt you to seek tax advice for the first time. However, it’s important not to regard it as a one-off transaction. Rather, it should be the start of a conversation that you have with your adviser on a regular basis to make sure you are doing everything you possibly can to run your finances in the most tax-efficient way.

Everyone can benefit from tax planning, but of course, the more complex your needs or situation, the bigger the benefits are likely to be.

Tax planning is all about paying the right amount of tax and avoiding the pitfalls that see too many people pay far too much. By taking expert advice and not employing the DIY approach, you can also be confident that you haven’t underpaid and don’t need to worry about an unexpected bill.

Ticking any job off your to-do list gives you a great sense of satisfaction, but I think the sense of relief that comes with sorting out your tax is better than most.

Just as sensible tax planning can save you money and grow your wealth long term, it also gives you that priceless sense of wellbeing that comes from not worrying about your finances and knowing that everything has been done as it should. Get in touch with a St. James's Place Partner for more information.

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The levels and bases of taxation and reliefs from taxation can change at any time and are generally dependent on individual circumstances.

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