How a Tax Adviser can assist throughout your life

10 January 2024 - Simon Hurren

It can always be difficult to know at what stage during your life or career you need the help of a professional tax adviser but an adviser can assist in different ways throughout. Simon Hurren, Tax Advisory Associate Partner takes a look at some of the key areas an adviser can assist at each stage.

Working backwards, the one that probably springs to mind for a lot of people is when a tax adviser can assist you once you have retired and are considering your inheritance tax (IHT) position.

Post-retirement

This is the point at which it is most common to seek tax advice. At this stage in life, you will have worked hard and built your wealth and may want to look forwards to protect it for future generations to benefit as much as possible.

With IHT at 40% of assets over the nil rate band, without any planning your family could see a large proportion of your hard-earned wealth pass to HMRC. Planning during your lifetime will provide significant tax savings.

IHT planning is always different for each individual depending on your wealth, capital, income requirements for your day to day living costs and your family relationships. This is not a ‘one size fits all’ situation, this is where bespoke tailored advice can be really beneficial to find a set of options, which suit you and your wishes.

There are two main options for IHT planning:

  • Gifting
  • IHT efficient investments

Whilst gifting could be beneficial, how do you know what assets to give away? When is the right time to make the gift? and; Will the gift definitely save inheritance tax?

The gift of capital that is surplus to requirement during your lifetime can give an IHT saving if you live for 7 years following the gift. Given the time frame, it is always worth reviewing the position sooner rather than later so that you can form a plan.

Gifts can be used to support your family with big life events, such as purchasing their first house, or helping with the cost of Grandchildren’s school or University fees. Doing this during your lifetime not only gives a potential IHT saving but you also get the satisfaction of watching those you love buy their dream home, enjoy that holiday of a lifetime or invest in education for their future benefit.

Gifts of cash do not have any other tax implications but gifting of other assets (such as a rental property or holiday home) can trigger a Capital Gains Tax (CGT) liability. A tax adviser can therefore advise which assets can be gifted efficiently for tax purposes.

It is also important to ensure you do not retain any benefit in the asset gifted (or any asset purchased with cash you gift). For example, if you gift a holiday home, but then continue to use it, the gift is ineffective for IHT purposes and you are back to square one. There are options to get round this, such as paying a market rent for your own occupation but again, an adviser will be able to help you find a suitable solution.

Gifting is not the only option, your family may already be well provided for or you may want to still be able to retain ownership of the asset in case you need it to help cover care costs in the future. This is where IHT tax efficient investments could be beneficial, and they often qualify for relief after being held for 2 years so can be another option if you are of ill health.

Retirement

Whilst most people will look to draw down their pension during retirement as the default, this may not be the most tax efficient option. Pensions have a number of IHT benefits until you are 75 so it may be beneficial to use other sources of income and capital such as such as ISAs to support your everyday living costs.

This will clearly depend on your circumstances and a tax adviser can help to assist with a plan as to what funds you should use in retirement to keep your affairs tax efficient as this is not always the default of drawing upon your pension when other sources are available.

During your career

Advice is needed throughout your career. If you are running your own business, a tax adviser can advise on how to structure any income you withdraw from the business to ensure it is tax efficient and utilises allowances and exemptions. This will depend on the structure of the business, levels of profits and your personal income requirements and an adviser can help understand your needs to build a strategy but keep it under review as the business evolves and your personal requirements change.

Pension Tax relief

Following the introduction of auto enrolment, employers are now required to sign up employees for pension contributions, unless the employee opts out.

Where pension contributions are made through salary sacrifice the tax relief is given when calculating your net pay each payday, however, where contributions are not made through salary sacrifice it is necessary to claim the higher (or additional) rate tax relief. An adviser can ensure that you have received all tax relief you are entitled to.

Share options

Your employer may look to offer share options to help incentivise you. The options can be granted under a range of approved and unapproved schemes, each of which have differing tax options. Under unapproved options (and certain approved schemes) there is an election which can be made, giving an immediate tax charge on grant of the option but this can lead to any future growth in the value of the shares being subject to the CGT rather than Income Tax and save significant amount of tax in the long term.

Advice on any share options can allow you to keep a larger proportion of the future value of the shares.

At the start of your career

Whilst it may not seem important to talk to a tax adviser when your career starts and before you have accumulated wealth, not doing so can actually create significant tax issues in the future.

For example, if you start a business, one of the considerations you should make is whether you should start as a sole trader or through a limited company. This could depend on the sort of work you are undertaking, the risks associated with the activity, the anticipated income levels and how much of your earning you will need to withdraw from the business.

Once set up, the structure can be changed but not with costs and potential tax charges. As the business grows and becomes valuable, these charges can be significant. By taking advice at the outset these potential charges can be prevented and the business can be set up ready for future growth and success.

As always, taking advice so you can make educated decisions on the options available to you throughout your career is important. A private client tax adviser can assist in different areas throughout your career, guiding you to a tax efficient position and prevent you falling into any large tax traps.

Contact our specialist team regarding tax advice by sending an email to Simon at hello@scruttonbland.co.uk or by calling 0330 058 6559.

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