Wealth managers and
tax planning explained

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Wealth managers can help high net worth individuals keep their tax bill down explains Dominic Gamble, CEO and co-founder of findaWEALTHMANAGER.com.

The UK taxation system is notorious for its complexity, with a variety of levies payable on income, capital gains and inheritance at different levels and at different times for different people. High net worth individuals may feel as if they are forever being tapped by HMRC, but careful tax planning with the help of a professional adviser can make all the difference to your personal wealth.

It is essential to take a knowledgeable and structured approach to your tax affairs, not only to avoid falling afoul of the Revenue (which is increasingly draconian in its stance on tax evasion) but also to make sure that your investments and all your financial affairs are optimised for tax-efficiency. There is a big difference (and a legal distinction) between legitimate tax mitigation techniques and tax evasion, and a professional wealth manager will be able to suggest a range of strategies to get your tax bill down – which are completely within the rule of law and commonly used by high net worth individuals.

Access to tax planning services is one of the reasons why someone would chose to go with a full-service wealth manager rather than a pure investment manager, since the latter will usually only manage the assets entrusted to them (although they may well partner with a firm which can offer tax advice).

How wealth planning works

The endgame of a wealth planner is to ensure that your family’s assets are not depleted over time and tax planning is a vital part of this. Robust tax planning will encompass both the bigger picture view and also the more granular elements of tax-efficiency. So, your wealth manager will be looking to implement tax-efficient investment strategies, and timing them for maximum efficacy on a short-term basis, they can also be looking way out into the future to the time when your estate passes onto the next generation – if this is a priority for you.

Many factors can impact your tax status and the amount you must pay each tax year. Some changes will be tied to big life events, like moving abroad, retiring or inheriting, while others will be the result of the goalposts being changed by the government (which of course they frequently do). However, with an expert in tax on hand you can still make sure that your assets and income are generating the smallest possible tax bill.

Private banks and wealth managers typically offer a plethora of tax-related services and it’s vital to find out if what is on offer covers all your financial requirements.

Succession planning

This area of advice concerns the tax-efficient transfer of family wealth to the next generation. Depending on the level of your wealth, there are a variety of tax mitigation techniques which may apply.

At a simple level, a professional wealth manager will be able to suggest tax-efficient investments (and perhaps even charitable donations) which could take parts of your estate outside of the inheritance tax net, while those with more complex needs and greater wealth can use vehicles like trusts to pass on family assets. In fact, there is an increasing trend for families of even fairly modest wealth to look at their assets across the generations and use structures like trusts and bancassurance (an asset management technique linked to life insurance) to safeguard family wealth.

Structuring investments for tax-efficiency

The good news is that there are lots of tax-efficient investment vehicles a wealth manager can advise you on. Saving for your pension carries significant income tax breaks and since the introduction of new ISAs these accounts have become an even more attractive way to invest (as of June 2014, the annual investment limit has been raised to £15,000 a year, which can be in a mixture of cash or stocks and bonds).

But there are also a range of other tax-efficient investment vehicles like Venture Capital Trusts and Enterprise Investment Schemes which your wealth manager could deploy as part of your overall financial plan. Furthermore, your wealth manager will be able to position your affairs so that you can take advantage of any changes to the tax rules. This can mean accelerating income when interest rates are on the rise, or putting off investments in readiness for future tax breaks.

Advising on relevant international tax law

Managing ones tax liabilities becomes exponentially more complex when your affairs are cross-border, as a result of being resident in more than one country or having significant offshore financial interests. International tax planning requires a great deal of expertise but a good wealth manager will makes it their business to have a deep understanding of all the tax rules which may apply to their clients.

Additional tax advisory services

Wealth managers may also offer advice on:

  • Estate valuation
  • Retirement planning
  • Business succession planning

Summary

There are lots of reasons why wealth planning is such an important area for investors to seek advice on. It goes hand in hand with investing, so for many investors getting the right wealth planning advice at the outset is crucial to maximising one’s investment strategy. If you get it wrong or don’t seek advice at all, you could erase all the hard investment work with a large tax bill just because you didn’t take advantage of the numerous incentives offered by the government.

So if this resonates with you, prioritise speaking to your wealth manager about a wealth planning overhaul and not simply about investments!

If you haven’t considered using a wealth manager before – or if you haven’t reviewed your existing manager to check their competitiveness and suitability – use findaWEALTHMANAGER.com to research and find your ideal wealth manager. Then, when you are ready, try our smart online tool. Alternatively, you can discuss your situation with our straight-talking team, please get in touch here.

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