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A financial planning article from the CGA magazine.


The maxim ‘Don’t sweat the small stuff’ warns of the pitfalls of placing too much emphasis on details others do not deem significant. Certainly, it’s a useful adage that can help remind those who over-focus on the minutiae to step back and, perhaps, not to worry about life’s smaller details. However, forfinancial planning professionals immersed in their careers, it is too often applied to financial planning matters.


Certainly, priorities change at various stages of a person’s career. For busy professionals – whether corporate executives, entrepreneurs, accountants or lawyers – financial plans are not always at the top of their crammed agendas. But the truth remains that starting to think about and plan for a financial future at as early a stage as is possible, can provide long-term benefits.


So, what are the areas of financial planning that a professional – faced with a range of pressures from a growing family to a busy social life, alongside demanding work hours – should address on the way to success? And what order of priority should they place on these different aspects of financial planning? Ideally, they should turn their attention, in this order, to protection, pensions, savings and investments (and with an understanding of the impact of taxation on wealth). Protection and tax planning are two areas on which I will focus.


Addressing protection and tax planning needs is a crucial initial step on this journey. Admittedly, dealing with the unknown eventualities that life can throw up will not always be at the top of an ambitious professional’s list of things to do. But it’s a strange world in which we live, where families in the UK are more likely to have a satellite television package than life assurance for the main breadwinner.


Of course, no one knows what the future holds. Consequently, it is crucial to make sure that adequate life cover is in place to manage the risk of anything happening to a family’s main breadwinner. Protection products, it is worth noting, come in many forms, from policies that cover the whole of your life to fixed periods (known as ‘term assurance’).


A protection policy can be designed to pay out a lump sum or a regular income to the surviving spouse. Either way, it should be uppermost in anyone’s priorities to ensure that they have allowed financially for their family to pursue and realise the dreams and

aspirations they wish to achieve, even in the eventuality of the death of a loved one and breadwinner.


Protection should be considered in tandem with estate planning, often an area of financial planning that is furthermost from the day-to-day concerns of young professionals. As a bare minimum, whether one is single or married, a will is absolutely crucial – it ensures that the decision has been made about how assets are distributed in the event of death.


A person who passes away without drawing up a will is deemed to have died intestate (without giving instructions on how to distribute their property, money and other assets). Of course, how an estate is split between spouses, children and extended family – and what happens in the event of divorce – differs between Scotland and the rest of the UK. But, whichever rules apply, they may not accord with an individual’s wishes for their estate after their death.


Furthermore, in Britain today, where unmarried couples living together is a norm, surviving partners can find themselves in a difficult position. Under the rules of intestacy, surviving children receive the value of the estate; if there are no children, this passes to one or both parents (if they are alive). In both incidences, the surviving partner receives nothing. Drawing up a will avoids this situation. (It is also worth remembering that a Power of Attorney ensures that wishes can be carried out in the event of the loss of mental capacity – and should be drafted and kept with a will.)


Tax planning is very much at the fore of the political agenda in the UK, as the government and HM Revenue and Customs (HMRC) have looked to stamp out avoidance. But, amid the debate over the definition of tax avoidance, a new term, ‘tax mitigation’, is being used more frequently. While avoidance suggests not wanting to pay any tax at all, mitigation implies putting the tax liability off until a later time – a deferral.


For example, pensions enjoy tax relief on any amount up to £40,000 a year that is paid into an approved pension arrangement. Income tax only becomes payable on the pension payments in the future, such as when benefits are taken. Other types of investment vehicles, ISAs for instance, are particularly tax efficient because, apart from tax credits on dividends, you don’t pay any additional income tax or capital gains tax when these investments are realised.


It is important to understand, and capitalise on, the allowances that HMRC does permit; these can be particularly valuable over the longer term and should not be overlooked, especially as there are often no ‘carry forward’ facilities.

Financial Planning