14th Apr 2021 by Henry Findlater

New Tax Year: The perfect time for a financial 'Spring clean'?

april

Henry Findlater, Partner and Senior Wealth Manager at MASECO, offers his thoughts on pensions, cash, children and gifting, for those planning on conducting a financial planning 'Spring clean' as we start a new UK tax year. 


As we start a new UK tax year, I am reminded of the words attributed to Benjamin Franklin, “By failing to prepare, you are preparing to fail.” I do not believe for one second a founding father was talking about financial planning, but these words still ring true in the context of wealth and tax. 

For those clients with a US UK nexus, any planning undertaken from 6th April 2021 through to the end of 2021 will be done in the same US UK tax year, avoiding a potentially complicated mismatch.  With this in mind, I thought a brief Spring clean of some financial planning thoughts might be valuable for our readers.

1.    Pensions
Get your pension contributions in early
Depending on your circumstances, you may be contributing to a UK or a US pension.  The earlier you fund a retirement pot, the longer the investments within have the opportunity to grow in a tax advantaged wrapper.

Unused UK pension allowance from prior 3 years?
Catch up contributions might be appropriate if your income levels allow. If you have not used your full allowance for the current year or the previous three, a top up contribution could be made.

Are you using your FTCs?
For US taxpayers funding UK pensions utilising your foreign tax credits will allow you to avoid double taxation if you end up retiring in the States. 

Maximise employer contributions
It could be viewed as free money!  It usually makes sense for an employee to contribute the amount that will maximise the employer’s matching contribution.

Should you be considering a UK pension distribution strategy?
Distributions from SIPPs take time, so plan ahead. 
Think about your 25% tax free lump sum, it may be beneficial to take it all at once or stage it over time, depending on other income sources, FTCs or outstanding liabilities.
If you are a non-UK taxpayer, ensure you have your NT (No Tax) code in place with HMRC to avoid UK tax being withheld from your withdrawal. 
You should assess any unused or expiring FTCs (they only live for 10 years) to ensure maximum tax efficiency of pension withdrawals. 

2.    Cash
Do you have any excess cash to invest in your portfolio, over and above your emergency pot?
or
Do you have any liquidity requirements that may require funds from your investment portfolio? 
Planning ahead will allow your wealth manager to assess the best options for withdrawals to meet your needs.

3.    Children
Saving for a child’s future can help give them a leg up in life. 
A 529 plan can be a tax efficient way to save for a child’s education…..especially if they want to study at an expensive US university. 
Contributions into a 529 plan grow tax free and are tax exempt on distribution, as long as the funds are used for qualifying education spend such as tuition, books or board .
While not tax free from a US perspective a Junior ISA still may be appropriate.  A JISA is tax exempt in the UK and an American child can have $2,000 of unearned income before they are subject to US Kiddie Tax rules. 

4.    Gifting / Inheritance
Gifting can be the simplest way to help your beneficiaries and reduce the size of your taxable estate.
Consider using your US gifting allowances early in the year to maximise their impact. In 2021 you can gift $15,000 without reducing your lifetime gifting allowance. If your spouse is not a US citizen, you can gift them $159,000.
If you are nearing the date of becoming deemed domicile in the UK, because you have been UK resident for 15 of the last 20 tax years, it may be wise to explore funding an Excluded Property Trust.  Such trusts can be a great way to equalise the small UK inheritance tax threshold (£325,000) and the more generous US allowance ($11.7m). 
From a UK perspective, gifted assets will be outside of your inheritance tax estate if you survive 7 years from the date of the gift.

The above ideas and prompts are not exhaustive and may not apply to all individuals.  We would encourage our clients to contact their MASECO wealth manager to discuss these thoughts in greater detail to ensure any action taken is suitable for each unique client situation.

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Use of information: 

•    Nothing in this document constitutes investment, tax or any other type of advice and should not be construed as such. 
•    The investments and strategy noted in this document may not be suitable for all investors and making available the information in this document is not a representation by MASECO that any investment strategy is suitable for any particular client. 
•    This document is provided for information purposes only and is not intended to be relied upon as a forecast, research or investment advice. 

Risk Warnings: 

•    All investments involve risk and may lose value.  The value of your investment can go down depending upon market conditions and you may not get back the original amount invested. 
•    Your capital is always at risk. 
•    Although the information is based on data which MASECO considers reliable, MASECO gives no assurance or guarantee that the information is accurate, current or complete and it should not be relied upon as such. 
•    The levels and bases of, and reliefs from, taxation is subject to change.  The tax treatment depends on the individual circumstances of each client and may be subject to change in the future.

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MASECO LLP (trading as MASECO Private Wealth and MASECO Institutional) is a limited liability partnership registered in England and Wales (Companies House No. OC337650) and has its registered office at Burleigh House, 357 Strand, London WC2R 0HS. The partners are Mr J E Matthews and Mr J R D Sellon; Mr D R B Dorman, Mr H Q A Findlater, Mr T Flonaes, Mr N B Tissot, Ms A L Solana. Telephone calls may be recorded for your protection.

MASECO LLP is authorised and regulated by the Financial Conduct Authority for the conduct of investment business in the UK and is registered with the US Securities and Exchange Commission as a Registered Investment Advisor.  

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