As the end of the tax year approaches, Fleet Street Wealth’s Managing Director Julian Morgan answers questions about what barristers should be doing ahead of 5th April (Updated 9th March 2021)
Why is 5th April important to barristers?
Individuals have annual allowances, with the two primary, most generous being pensions and ISAs. It makes good financial sense to make the most of those allowances before the 5th April deadline. The ISA allowance, for example, cannot be carried over into the following tax year. Pensions work slightly differently as there is the ability (for those who have pensions already) to make use of some of the unused annual allowances from previous tax years but conditions apply and this rule could and probably will change in the future.
Monies within pensions and ISAs grow tax free and therefore have the potential to grow quicker than other investments. In addition, investing in pensions helps to mitigate annual Income Tax bills. Finally, HMRC contributes money on top of individuals’ own regular or lump sum payments, which again means funds should grow quicker than otherwise comparable investments. This in turn helps secure a more financially secure future.
It is important not to forget other annual allowances such as the Capital Gains Tax Allowance, various attractive allowances on offshore investments and finally those accessed via Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs).
There are also things to consider relating to the Personal Allowance. For example, the importance of setting up a non-working spouse pension so that they can use the Personal Allowance in retirement. And, because of the loss of the Personal Allowance, particular consideration needs to be given to those with earnings between £100K and £125k.
Would you say that this particular tax year end – because of the situation we’re in with the pandemic – is potentially even more important for the individual?
Our opinion of the recent Budget is that Mr. Sunak has deferred any ‘big changes’ needed to recoup current levels of Government debt to future reviews, be that via an Autumn Statement, the next Budget(s) or an ‘emergency’ Budget. It’s likely that the government will need to stop providing as much financial benefit to the wealthy as they are currently. In Sunak’s speech he only mentioned that three particular allowances and tax bands were to freeze from the new tax year until April 2026: the personal allowance, the higher tax threshold and the Lifetime Allowance, all of which should have continued to rise in line with CPI annually. We therefore believe that the threat to all other allowances and their respective tax rates not only remains possible but also probable. In fact, on 23rd March the government will issue consultation documents on some taxes and processes, although it has not said exactly which. Whilst these allowances remain in place, albeit frozen, benefitting from them could be very timely indeed.
You’ve been working in the industry for many years; are you still surprised that some high-earning individuals have overlooked these opportunities in the past?
I am. However, there are sometimes reasons why individuals may not have used the valuable reliefs on offer. When it comes to an individual’s finances, we would usually recommend that paying off short-term debt or funding a deposit on one’s first property is prioritised. However, individuals also need to be mindful of the future and consider how they are going to fund school fees, children’s deposits (if applicable), perhaps a second property and of course provide for the income required in retirement.
There are those that have historically turned to property as a way to do this. However, following the introduction of the buy-to-let tax and stagnation in prices in many urban areas, these are being sold off. Additionally, the decline in high street retailing and more recently the vacating of office space during (and potentially after) Covid will likely lead to a change of usage to residential and further fuel the decline in the buy-to-let market. Also notable is the risk of putting so much emphasis upon one or a few assets with the associated lack of diversification – you are after all investing into one asset in one location and one currency!
There’s always a rush to fill in accounts at the end of January, so when it comes to the end of the tax year, how late can I leave my financial planning?
Ultimately, 5th April is the deadline. However, providers often close their doors up to five working days before the end of the tax year, which effectively pushes the deadline to the end of March. It’s important to note that 5th April this year falls on Easter Monday, further highlighting the need to act sooner.
It is extremely important to note that there is a lot of associated work for financial advisers to do – they need to understand the client situation, carry out research, calculate allowances, prepare the paperwork, populate the application forms, get the paperwork back, get the money in and then process the whole application. We are recommended by a number of different sources and take on a large number of clients during February and March, which means we have an enormous amount of pressure on us. If it’s your intention to invest before the end of the tax year and you also you have the funds available, we suggest you do this as soon as possible.
If I’ve got a good accountant to help me with my financial affairs, why would I also need to use a wealth management firm?
We work closely with a number of accountancy firms who use and recommend us, and that’s fantastic. We work in tandem with them because they can provide us with their clients’ financial accounts upon which we can calculate their allowances. However, unless accountants have their own financial advisory arm, they are not regulated by the Financial Conduct Authority, which means they are unable to give advice on financial services.
By using a wealth management firm, you will have access to financial advisers who know the policies and understand what contributions have been paid in previous years. They can also advise on whether a pension is the best place to invest, depending on an individual’s situation.
Pensions are not the only way to invest for retirement. Indeed many of our clients have no intention to use funds from pensions but instead will rely upon other tax advantageous investments (such ISAs, investment funds, offshore investments, Venture Capital Trusts, Enterprise Investment Schemes and private equity) and pass on their pension funds free of Inheritance Tax to their children.
This spread of income-generating investments is important because, if legislation changes, different allowances need to be utilised each year to minimise the tax bill by reducing Income Tax, Capital Gains Tax and (potentially) Inheritance Tax liabilities. A wealth management firm can help with that.
Let’s say I’ve decided I need some expert financial advice from a financial adviser or wealth manager; how do I make up my mind whom to choose?
I strongly recommend that people look at truly independent firms because financial advisers can then provide the greatest breadth of advice. If, in future, a superior new product enters the market, certainly we – and any reputable independent firm providing an ongoing service to a client – should transfer you to the new policy, the most suitable policy, free of charge. This is part of their commitment to proactively safeguard your position and drive up performance.
With increased regulation has come a tendency for firms to limit the scope of their advice to the products of a far smaller pool of companies. In some cases, this may only be one company and it is questionable that that will remain the best company for the full term of your policy.
It is also important to consider fees. The Retail Distribution Review in 2012 abolished commission on investment products and advisers now set their own fees to clients for the services they provide, but you will need to look at the scope of those fees and determine what the overall charge is.
In most cases, there will be an initial fee and an ongoing fee. For the majority of firms, initial fees are percentage related, which means the more you pay into the investment – whether it be a pension investment or an ISA – the more you pay in fees. However, we would argue that this is unjustifiable; if you are investing £100,000 as opposed to £10,000, it does not cost us any more to write that business. Therefore, our initial fees are not percentage related and we use set fees. We have worked out what the average time spent on any one application is, applied a profit margin to that, and that is our set fee, regardless of whether you invest £10,000 or £10m. For ongoing fees, we have a cap on our annual charge as we believe that’s the right thing to do.
Additionally, for barristers, it’s important to choose a firm that has a sound knowledge of the Bar and a strong understanding of the profession. At Fleet Street Wealth, we understand the challenges barristers face. We understand the way the self-employed are taxed and we know which mortgage and debt companies are more open to the fluctuating earnings of barristers. It is this distinct knowledge and deep understanding of the profession that helps us find the right providers and offer the best propositions.
And that’s because you work with a lot of barristers already? That’s where that knowledge has come from?
We work with several hundred barristers from within most of the London sets and members of the Judiciary and we have had association with the Bar for 27 years. So, we are well known within chambers, by many of the clerks, accountancy firms who operate within this sector and other affiliated bodies. We also act as adviser to most of the main legal charities based on Chancery Lane.
What is different about a barrister’s situation to employed professionals?
The most obvious difference is the tax treatment and the transition from the ‘cash basis’ to the ‘true and fair basis’. However, income can also fluctuate significantly and they often invest lump sums rather than regularly. Other than the Judicial Pension Schemes and some income protection benefits set up via chambers, no occupational benefits exist and therefore the Bar need to provide for themselves. The combination of all this means it’s vital they have good financial advice.
Barristers also work long hours and some of the life policies (for example, income protection) are not suitable because the life company have restrictions on the numbers of working hours. It is therefore crucial that one understands the contracts one takes out and their likely suitability.
When taking on a client, we start with understanding their current situation, we then work with them to establish their goals and aspirations and their likely income requirement or capital requirements for the future. We look at their existing assets and their intentions – such as to further fund pensions – and we establish whether this will be sufficient to provide that income or whether there any shortfalls.
Presumably the fact that barristers are generally time-poor puts an emphasis on you to get the job done very quickly, efficiently and effectively to understand their situation?
When you’re self-employed, it’s normal to bring some work home with you and there’s no obvious work-life division. Our barrister clients therefore need high levels of servicing and they need to know that when they’ve got a problem, whether it be day or night, they can send an email and it will be dealt with promptly.
We also understand that barristers are not always available and that they are often in cases in which they’re completely immersed for weeks or months on end and won’t necessarily be able to get back to us. We understand how to approach our barrister clients, how to support them, and we understand how we can work with their clerks if so requested. When life eventually returns to normal, we will return to hand delivering and collecting all of our post from within the London Bar – which our location in Temple enables us to do. This ensures that nothing gets lost or delayed in the post.
So if I come to you for some financial advice, what does the client journey look like?
There are certain regulatory responsibilities that we have, so we will research a client’s individual situation at the outset and make sure we fully understand that. We will ask for details of existing policies and plans they may have, mortgage debt contracts, as well as their current situation and their goals and aspirations. For many, the most obvious goal is retirement, but before that it might be buying a second property, moving to a larger home or paying school fees.
As part of this process, we go through a fact find, as well as an expenses schedule and a risk form. The main document will take a client about an hour to complete at home, or we can go through it with them over Zoom or over the phone and fill it in ourselves and send it to them. We then also access information on their existing contracts. We marry up the information from external providers with the information we have and, taking into account the client’s aspirations, we assess what is working well, what needs to be changed and what needs to be set up. Those recommendations are then summarised to the client.
Once the client receives the summary, they have the chance to go through it and consider what actions they want to take. For example, along with their primary objective of setting up a pension scheme, they might want to take out life cover or an ISA. We confirm what the costs of setting these up would be and, as long as they agree, we’ll prepare the recommendations, pre-populate the application forms and send them over. Once they have been returned, we will process them.
Typically, how long does that take?
If we have all the information in place – so that includes the third-party information from other providers – our turnaround is typically 10 working days to provide the summary. Roughly a week after the client has agreed what to do, we can provide them with all the application forms. Clients then receive a formal review every year which focuses on all their financial planning.
And a message to barristers who have yet to address their financial plans?
Whilst it’s never too late, it’s important – and normally financially beneficial – to consider your financial plans as soon as possible. Secondly, make sure you do your homework well and choose a financial advisory business that has extensive experience of working with barristers, is Chartered, independent and is fully fee-based. Their Client Service Agreement should clearly detail all charges and not bury them in lots of text.
Finally, why choose Fleet Street Wealth?
Apart from the things I’ve already mentioned – Chartered status, independence, a true understanding of the Bar, fixed fees, there’s one other point I’d mention. I would argue that the quality and technical competence of the people within the firm at all levels is unusually high. We are particularly careful about the individuals we take on.
We are one of the few firms to have a Graduate Training Programme that takes five years to complete. Staff are all extremely articulate, service orientated and wedded to the idea of providing clear, structured, ethical financial advice to our clients.
To arrange a free initial consultation to discuss your end of tax year planning, click here.