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How one of our advisers saved a client £14,000 in tax

Hugh Breach, Financial Adviser, describes how he advised a client and how they paid less tax as a result.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

My colleagues and I are regularly asked about how to make the most of tax allowances. It’s an area we specialise in.

Some only think about it when it comes to tax year end but saving tax needn’t be a once a year job. We can look under the bonnet of your finances at any time and look for ways to make your affairs more tax efficient.

Everyone’s circumstances and needs are different, but here’s how I helped one of my clients save £14,000 in tax.

My client’s background

My client got in touch for advice on investing some of the cash savings she’d built up. Her aim was to invest this money so it could help fund a retirement chock full of things to look forward to.

She planned to retire in around 5 to 10 years’ time – a good amount of time for her portfolio to make a difference. Like many clients I speak to, she found investing interesting, but wanted some one-off advice to be confident she was making the right decisions. She was happy to manage her investments after we parted ways, safe in the knowledge she could call on me again at a later date - without being locked in to paying for yearly reviews.

How I helped her save £14,000 in tax

An in-depth understanding of the rules can result in big tax savings. And these savings, coupled with having more money in your pension, could add up to a big difference when you come to retire.

My client was a higher–rate Scottish taxpayer, so the most obvious place for her to achieve both these things, was to use the tax relief available on pension contributions.

But the opportunities didn’t stop there.

In our quest to boost her pension in the most tax efficient way, the ‘carry forward’ rule was a handy weapon to have in our arsenal. This rule effectively allows a second bite at unused pension annual allowance from the previous three tax years.

So we took a dip into her pension history, where I uncovered a gem hiding in plain sight: £42,000 left in unused annual allowance. She was in a strong position and earned enough to allow her to contribute this amount in full to her pension. She did this by contributing more to her workplace pension.

My client managed to save an impressive £14,000 in income tax. As she did this via salary sacrifice, she also made a National Insurance saving, meaning her £42,000 pension contribution effectively cost her less than £28,000 - all things considered, a good day at the office.

I had one last parting gift. Because she had used her full ISA allowance, I helped her invest some leftover excess cash in an HL Fund and Share Account. I advised her she could move these investments into a more tax efficient account such as an HL Stocks and Shares ISA in the future, via our ‘Bed and ISA’ service. This allows her to take advantage of next year’s ISA allowance without committing more cash.

By working with my client, I was able to give her a clear view on the present and a strong plan for the future. She is now self-sufficient, but is free to call on me again if she needs a helping hand in the future.

This article is not personal advice. Tax rules can change and any benefits depend on personal circumstances. Unlike the security offered by cash, investments fall as well as rise in value so you could get back less than you put in. If unsure, please seek advice. We can advise you on how to make use of your tax allowances through financial planning but if you need complex tax calculations, we recommend consulting an accountant. Once money is in a pension you cannot usually access it until age 55 (57 from 2028).

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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