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The importance of financial planning

Financial planning is often an area that takes a back seat in busy lives. When there is no specific deadline to make a financial decision, it is very easy to say that you will address it in the future when life becomes less hectic. Taking the time to review your financial position, your personal wealth goals and objectives and consider the implications of whether your strategy will appropriately meet those goals can be an important exercise. Ensuring that you have an effective and appropriate strategy will likely afford you future flexibility and peace of mind. Below we discuss the areas that are beneficial to consider and review. A few easy steps can ensure optimal wealth planning strategies.

How an Excluded Property Trust can help a US person living in the UK plan for UK IHT

Many Americans living in the UK are considered to be non-domiciled for UK inheritance tax purposes. Under new rules set to take effect in April this year, a non-domiciled individual becomes deemed domicile for inheritance tax purposes when they have been resident in the UK for more than 15 out of the last 20 years. When an individual is deemed domicile for UK inheritance tax purposes, the UK will generally apply its inheritance tax rules on an individual’s worldwide assets.

US Year End Planning: Pay your UK taxes before 31 December

As you plan for year-end, one of the important things for US persons living overseas to pay attention to is matching their foreign taxes paid to when the income will be recognised as taxable in the US. This is especially important for those living in the UK as the tax years differ which can result in a timing difference in when taxes are paid. As many already know, the US tax year is based on the calendar year and the UK tax year runs from 6 April to 5 April with taxes due by 31 January of the following year.

US Year End Planning: Estimating Capital Gain Distributions and Assessing the Benefits of Tax Loss Harvesting

Over the last few weeks mutual fund companies have begun publishing their estimates of year end distributions that will be made, mostly in December.  As you review income realised to-date throughout the year (either through realised capital gains, dividends or interest), it can be beneficial for a number of reasons to factor in the anticipated distributions for the remainder of the year.

First, if distributions are projected to be quite high and depending on individual circumstances it may make sense to hold off on investing new cash going into a particular fund or to time rebalancing of a portfolio to minimise exposure to the distributions.

Net Investment Income Tax (NIIT) And The US Taxpayer Living Abroad

The Net Investment Income Tax (NIIT) officially went into effect for the 2013 tax year. So, by now many individuals have had time to become acquainted with it. However, since the statutory threshold amounts by which NIIT applies is not adjusted for inflation, it is likely that with each passing tax year, more and more taxpayers will fall into the NIIT net.

Individual taxpayers are subject to a 3.8% NIIT on the lesser of their net investment income, or the amount by which their Modified Adjusted Gross Income (MAGI) exceeds a certain threshold determined by filing status as outlined below:

Did you know your IRA offers you protection?

Evidence based investment approach.

Most people are unaware that typically assets held within their Individual Retirement Accounts (IRAs) are protected from creditors, including being shielded from US federal bankruptcy proceedings. Every three years, the level of protection increases with inflation.  For 2016, the number is $1,283,02511.

It would be very difficult for the average investor to breach this limit. Why?  Because even if the investor has been contributing since IRAs have been available, they would’ve had to maximize funding and had stellar investment performance…both unlikely scenarios.  The cap applies not only to IRA, but also to Roth IRA tax-year contributions and earnings on those contributions.

The Hidden Value of Great Wealth Planning

Almost everyone worries about money, what the future may hold, and the decisions and choices that they will face along the way; yet few realise that wealth planning is the key to sorting it all out.  Everybody needs it, but only a few have unlocked its true value.

For those who have, the equation between the value that they receive from their wealth manager and the fees that they pay needs to make sense.  Yet, because the benefits of good advice are often received in the far-off future, it is sometimes easy to miss, or dismiss, the value received along the way.  Market noise, emotions and periods of what may seem like inactivity on a wealth manager’s behalf, can also impact on the perception of value.  It is often easy to appreciate the value received in the first year, and easy to forget or appreciate the value on an ongoing basis.  The wealth planning relationship can be broken down into three key phases of value.

The role of QDOTs for bi-national estate planning

There can be some great planning advantages in the case of a bi-national couple where one spouse is American. Opportunities often abound for example in choosing to own certain assets in either spouse name to optimise the tax implications for either US or UK purposes. For instance, the non-US spouse could take advantage of some of the UK tax-advantaged accounts and asset ownership structures in the UK that are generally not beneficial for a US person, whilst the US spouse could focus on utilising US tax-efficient vehicles.

Why is Estate Planning important?

Estate and inheritance tax planning for a US person living in the UK is an important area of your financial life to address. This is probably even more so due to the large differential in the nil rate inheritance tax bands available in the UK as compared to the US (£325,000 versus a current $5.45 million in 2016). A lack of understanding about how inheritance tax works can end up costing families hundreds of thousands if not millions of dollars. However, proper planning can help minimise the amount of inheritance tax payable and help ensure that families are left with an estate that will provide for their needs after death. Proper strategies will largely depend on the individual circumstances of the decedent.

Considerations need to be given to the following:

• Whether you are deemed to be UK domicile or non-UK domicile
• Location and situs of assets
• What would be ideal versus acceptable
• Size and composition of assets
• Citizenship of spouse, if applicable
• Citizenship and relationship of estate beneficiaries
• Whether any lifetime wealth transfer is feasible

There is significant personal thought and planning that goes into what strategies will best meet your specific individual preferences. Sometimes it’s difficult to know where to start or how to think about the eventual distribution of your assets. It is often beneficial to have a solid idea ahead of sitting down with a solicitor so that you can have more productive conversations. Taking the time to frame your thinking on who you might want to pass assets to will begin the process of developing a strategy based around your own needs and requirements.

Estate Planning is a dynamic process. As your life develops your beneficiaries and charities will change. This should not be an excuse to not plan but instead to amend and tweak existing structures.

For more wealth planning tips and tidbits from MASECO read our 39 Steps to Smart Living in the UK.

Risk Warnings and Important Information
The value of investments can fall as well as rise. You may not get back what you invest.
The above article does not take into account the specific goals or requirements of individual users. You should carefully consider the suitability of any strategies along with your financial situation prior to making any decisions on an appropriate strategy.

MASECO LLP trading as MASECO Private Wealth is authorised and regulated by the Financial Conduct Authority, the Financial Conduct Authority does not regulate tax advice. MASECO Private Wealth is not a tax specialist. We strongly recommend that every client seeks their own tax advice prior to acting on any of the strategies described in this document.