“‘Tis impossible to be sure of anything but Death and Taxes.” – wise words from the early 1700’s that are still pretty accurate today. The issue is that that leaves rather a lot that’s uncertain.
We hear a lot in the news about how businesses don’t like uncertainty, how stock markets don’t like uncertainty… but the thing is that uncertainty is pretty tricky for people too.
In many ways, people are simple creatures – we generally want to have as much as possible to give us the ability to live the life we want to lead. We want to look after the people we care about and we want to pass something on. Most of us don’t like paying tax and like to feel in control. Sadly not many of us have got a crystal ball that works so that all becomes a bit more challenging, but not impossible, when we’re surrounded by uncertainty.
So in this blog I’m going to spend a bit of time looking at where uncertainty comes from and at what you can do to try to minimise the impact.
Understanding your income and expenditure
Knowing the kind of lifestyle you want in the future is essential for financial planning. But it has to be based in reality, and ironically that’s where things can sometimes get a bit uncertain. You can start by understanding how much your life costs, how much money you have, how long it might last as an income, how much you can afford to spend etc. etc.
Then after that’s all been worked out, you might be lucky enough to find you’ve got excess funds – so what do you with that? Keep it? Invest it? Give it away? Making informed decisions around your finances starts to give you some control over them. Whilst some element of expenditure will always be reactive, the ability to control income is a very important tool when it comes to tackling uncertainty and achieving your goals, particularly when it comes to pensions and investments.
Your health and your wealth
Health really is one part of life we can’t control. But there is something we can all do – we can make things as easy as possible for the people we care about in those incredibly difficult times.
One simple thing that can help massively is having Powers of Attorney in place – that way, trusted people can make decisions if you can’t make them yourself for any reason. The administrative bits of life can continue to run as they need. Bank accounts and investments can be managed, and should you ever lose capacity, nothing will freeze and no-one will have to toddle off to court, with all the expense and emotional upheaval that involves.
The other people in your life
Life can be messy, relationships are complex, and other people might just be the most uncertain things of all. We all care about the people closest to us, and from a financial point of view that’s often likely to involve children and grandchildren.
So how will your children and grandchildren turn out? How do you balance supporting them and keeping the money in the family? How long will you need to support them for? Just how long will they keep studying? Will they ever get a ‘real job’! Will any of them need a bit more help and support than the others? Will one be a budding entrepreneur? What if the businesses don’t work out and there’s a line of creditors fighting for money? Will one meet a partner you don’t trust or don’t like? What if they marry that person and get divorced?
Successfully keeping money in the family means having considered all of that and taking steps to protect yourself and your family financially. Of course, when it comes to family there are a lot of things that you just can’t control. But that just makes it even more important to take control where you can.
Protecting family money often comes down to sharing whilst keeping control. This is where trusts come in. Many people wrongly discount trusts thinking they’re complex, expensive and something HMRC doesn’t like. None of this needs to be true though.
In fact, the Government has announced a consultation for 2018 to make the taxation of trusts simpler, fairer and more transparent. But even without that, trusts are an invaluable way to support others without having to hand the whole lot over, without having to give up control and without having to accept that it can be spent as the person wishes. The sky’s really the limit when it comes to trusts – they can be drafted to do so many things, to cater for so many priorities and circumstances and can be a crucial part of a financial plan.
Death may be certain, but inheritance isn’t
This could be what you might inherit or what you could be passing on. Are you going to inherit and either end up with an inheritance tax problem you didn’t have before? Or are you at risk of making an existing problem bigger?
If you can, and I appreciate this can be challenging, addressing things before you inherit is an awful lot easier than trying to fix the problem after you’ve inherited. Have the conversation with the person you will inherit from. Help them to understand the issues and update their Will (or put one in place) so that it’s tax efficient and doesn’t give you a problem.
Whilst Deeds of Variation can allow you to change someone’s Will after they’ve died, it needs all the beneficiaries to agree and nothing brings out the worst in people like money. Even if everyone does play nice, if any of the beneficiaries are children they can’t agree to any changes – the court has to do it on their behalf. That’s another expense that takes family money away.
What about what you’re going to pass on? The key to passing on as much as possible to the people your care about is an up to date Will that considers tax and asset protection; balancing both to meet your objectives. And let’s not forget your pension. You need to have an up to date nomination in place that sits alongside your Will to form your overall succession plan.
Tax doesn’t always have to be a certainty
Being tax efficient is all about planning. Paying the right amount of tax should be simple, but in many cases it isn’t. You need to know what you’re eligible for; whether that’s under income tax, capital gains tax or inheritance tax rules. Then it’s about knowing how to claim it. And hardest of all, it’s knowing what allowances, exemptions and reliefs you could be entitled to with a bit of forward thinking.
Once you’ve done all that, it’s important that you can record and report it properly. An accurate tax return is vital if you are to benefit from all the planning, have the right tax code and avoid penalties and interest.
Bringing it all together
Hopefully you’ve been able to tick things off as you read this:
- I understand my income and expenditure needs – tick
- I’ve got Powers of Attorney in place – tick
- I’m able to share money whilst keeping control – tick
- I’ve got a Will in place that support my goals of being tax efficient and protecting my assets – tick
- I’m not paying more tax than I need and my tax return is under control – tick, tick
- And best of all, someone I trust is keeping an eye on all of it for me – tick
If you can’t tick those things off the list it could be a good idea to talk to your financial planner. If you don’t have one, you can arrange a no-obligation discussion with an 1825 Financial Planner to talk about the things you’re worried about and see how we could help.
The final parts of the puzzle that I haven’t mentioned so far are legislation, politics and the economy. They are what they are and will be what they’ll be. But whilst you can’t control them you can give someone else the job of keeping an eye on them and how they could affect you or present opportunities for you. That’s a key part of what really good ongoing financial planning and advice is about. If you want to find out more about how we can help with this, please get in touch.
This blog and any responses to comments should not be regarded as financial advice. Laws and tax rules may change in the future and your tax treatment is based on your individual circumstances. The information here is based on our understanding in February 2017. Investments can go down as well as up in value and you may get back less than you pay in.