Maximising after-tax outcomes has three dimensions:

 

  1. Annual ‘housekeeping’ exercises that make use of known information about tax allowances and thresholds

  2. Decisions triggered by changes in tax legislation including the tax treatment of pensions

  3. Decisions that involve judgement about uncertain future tax rates and allowances, including possible major changes in tax legislation.

Some decisions involve an overlap between these dimensions.

 

The first is the low-hanging fruit in efficient management because it is both rational (rules-based) and relatively certain in its effects. But it is also fiddly and labour-intensive and so is often omitted from standardised wealth management services. It is one of the service elements of wealth management that are worth paying for and therefore worth us doing well, as part of genuinely-customised management.

 

The second is not predictable but may previously have been an input to decisions made subject to the third, as expectations become fact. Examples are the frequent changes in pensions legislation, which were partly predictable from a general direction of travel, and partly random. Knowledge about the second can in turn trigger changes to strategies based on judgement about the future tax regime.

 

The impact of judgement in both areas can be highly significant in terms of its contribution after the event to after-tax outcomes. Given its explanatory power, seeking tax advantage is a source of value worth paying for. Though uncertain, it is also more manageable and predictable than some of the investment management activities that make up much of the cost of competing services such as market timing and stock selection.  

 

Efficient tax management requiring judgement is less about special structures and products (these usually attract both cost and conflicts) and more about optimal decision making within the structures and products you will anyway need to implement goal-based investing:

 

  • The role of trusts in your goal planning

  • How best to assign your new savings and existing holdings to different accountsor (in investment jargon) ‘wrappers’ with different tax treatment

  • Maximising after-tax returns from the risk-free component of your capital allocation (the choice of hedging asset may vary somewhat subject to tax treatment)

  • Where to source your draw from capital at different stages of decumulation, as between taxable accounts, pension funds and ISAs – and perhaps property and business assets

  • Minimising the more heavily-taxed income component of draw and optimising the timing of CGT payments

  • Estimating the resulting ‘blended’ tax rate (income and CGT) that feeds into the after-tax outcomes in your goal planning

  • Minimising IHT, but in the context of your preferences for spending and gifting designed into your goal planning.

 

From these examples it is clear that the scope to add value from tax-efficient management varies even if some elements are common to all.  This is reflected in how we customise the service scope and the flat fee.

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Tax Advice and Management

 

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