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The financial planning process
The first step will be to gather all the information required to prepare a financial plan. If this to include a projection of future cashflow, we will need information on your income and outgoings.
The resulting plan aims to make efficient use of your resources, in order to achieve your objectives, and identify alternative solutions. It can allow you to plan for such things as education costs, retirement, the cost of long-term care, and inheritance tax.
Your Objectives
We will spend some time talking with you to identify your financial objectives. This will include collecting information on your assets and liabilities, income and outgoings. Once all the information has been gathered, we will prepare a net asset statement, and an income statement including your tax and National Insurance contributions. We may do a cashflow analysis, to assess the feasibility of achieving your objectives.
An important part of achieving your objectives, such as funding for a child's education, or having enough income in retirement, is to achieve a certain level of return on your investments and pensions. We will discuss with you your attitude to investment risk, which we normally do using a questionnaire.
Because there is a relationship between risk and reward, the level of return that you can expect from a cautiously invested portfolio will be lower than from a more adventurous one over the medium to long term.
Tax planning
We endeavour to make sure our recommendations are as tax efficient as possible. Pensions and tax efficient investments (e.g. ISAs) are often ways of reducing the tax burden and increasing the amount that can be saved. The new 50% income tax rate (42.5% for dividends) from 6 April 2010 for people earning more than £150,000, together with the loss of the standard personal allowance (at a rate of £1 for every £2 above the limit) for those with income above £100,000, makes this type of planning ever more important. In addition, we consider estate planning, including ways of reducing potential inheritance taxes.
From April 2011 the basic rate tax band has been reduced to £35,000, meaning more will pay higher rate tax. By making an additional pension contribution it is possible to increase the income tax threshold, saving higher rate tax. By using salary sacrifice you can also save employer and employee NI contributions.
Education Funding
For money provided by grandparents or other relatives (not parents), the use of a Bare Trust allows the income from the funds to be taxed as belonging to the child, taking advantage of the child's personal allowance. The investments can be collectives (unit trusts, OEICs, or investment trusts), or you can use an offshore bond in a bare trust. By taking chargeable gains within the child's personal income tax allowance to pay school fees, there will be no tax during the term of the bond, and there is likely to be no tax on final encashment.
A grandparent with an existing offshore bond can assign segments of it to a grandchild's Bare Trust, and then encash it to pay school fees. The chargeable event will be taxable on the non-dependant child, not the settlor, another good way of saving tax.
Long-Term Care Planning
The support potentially available includes: NHS Continuing Healthcare, where the primary need is a health need; NHS funded nursing care; local authority support.
Assessments for residential care are made by the local authority, using the 'Charging for Residential Accomodation Guidelines' (CRAG) issued by the Department of Health.
The capital limit above which an individual is expected to meet the full costs of residential care is currently £23,250 April 2011). In the case of a married couple, the spouse's income or capital must be ignored unless they too require residential care. Capital that is jointly owned will typicall be treated as being owned equally. The main residence may be disregarded if the spouse or partner continues to live in it.
Cashflow analysis can be used to forecast the likely needs, so that a suitable amount of money can be set aside and invested to provide for these.
You might like to browse our Life Stages guide, within this section, helpful in starting to consider financial matters at your stage of life.