Neil Gore, Partner at Amber River Shipman Wealth, believes financial planning needs to start with the individual, rather than the tax advantages available to them.
“You have to start with the client and the life they want to live,” he explains. “Once you understand that, you can start to understand what they want their money to do, and then you can look at the most tax-efficient way of helping them achieve it.”
It's a distinction that becomes increasingly important when clients have several competing priorities, from building their wealth to supporting family or making plans for retirement.
When a tax saving comes with a trade-off
Paul Benney, Director at Frost Chartered Accountants, works alongside Neil and shares his view.
“Something that reduces Income Tax today isn’t necessarily the best decision over the long term,” he says.
Take pension contributions. The tax relief can be attractive, particularly for someone paying higher rates of Income Tax. But what if they're in their early fifties and hoping to cut back their working hours, spend more time travelling or retire before they can access their pension?
Putting too much into pension savings could leave them without enough accessible money to do those things.
That doesn't mean making additional contributions is necessarily the wrong decision. It's about understanding what else the client might need their money for before deciding how much to commit.
What does the client actually need their money for?
People's priorities can change as their wealth grows. Someone who's spent years concentrating on their career or building a business might start thinking about having more time for themselves or helping their children get established.
Neil uses cashflow modelling to help clients work through these decisions. By looking at their income, investments, spending and future commitments, he can explore what might be possible and what the financial implications could be.
Could they afford to retire a few years earlier? Would they have enough money to maintain their lifestyle if they worked less? How much could they give to their children without affecting their own financial security?
These aren't questions that can be answered by looking at the current year's tax position alone.
Looking beyond individual decisions
An inheritance is another example. A client might be considering gifting some of the money to their children or investing it for the future. But how much can they comfortably afford to give away, particularly when their own retirement or later-life care needs are still uncertain?
And decisions about taking income, holding investments or transferring assets can have implications for both current tax liabilities and the value of someone's future estate.
Neil puts it well: “You can solve one tax issue and create another if you’re not looking at the whole picture.”
Sometimes there isn't a perfect answer. A client may decide that paying a little more tax is worthwhile if it gives them greater flexibility or allows them to do something that's important to them.
Making decisions with the wider picture in mind
These conversations can come up quite naturally when accountants are discussing income, investments, pensions or estate planning with their clients.
And where a decision has implications beyond tax, bringing other professional advisers into the discussion early can help everyone understand what the client is trying to achieve and what the options might mean for them.
The aim isn't necessarily to pay the least tax possible. It's to make sure the financial decisions someone takes help them do the things they want to do with their life.
Get in touch
Amber River's independent financial planners work alongside accountants and other professional advisers to help clients plan for the future.
If you'd like to discuss a client case or find out more about working together, visit amberriver.com or call 0800 915 0000.
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