This time of year is a good time to review your financial and life goals and set priorities for you and your family. With a great deal of change for so many, particularly in the last two years, financial priorities can sometimes take a back seat.
It can be overwhelming to know where to start so Stuart McCulloch, our Middle East Market Head, has created the following checklist sharing some of the key things to consider to help you get started and make sure you are on track.
Checklist
- Review your financial and life goals
- Looking after you and your family
- Review Your Will, and make sure it’s up to date
- Consider your tax obligations
- Take time to consider ESG investments
- Use your allowances
- Keep your investment strategy tax efficient
- Stay level-headed
Review your financial and life goals
Whether this is working towards an early retirement, starting the build on your dream property, or setting the next generation up for the future, each person’s goals differ depending on how they envisage their future, their earnings, stage of life and many other factors.
Your priorities in life can quickly change and so it’s important to factor in all potential future life events when making a financial plan. We’ve seen, especially in the last few years with Covid-19, that factors such as needing to repatriate back to the UK, move abroad or looking for a new career opportunity has meant that, for many, the financial and life outlook has changed.
It’s important that you take some time to reflect on your own personal situation, think about what you want to achieve, and what’s needed to get there. Keeping your plans up to date allows you to stay on track to reach your life goals and achieve financial freedom.
Looking after you and your family
Adequate cover should really be the first point addressed and is just so often overlooked. Life insurance, critical illness cover and income protection should all be considered carefully (certainly for those with young families) and if you’re living outside of the UK, then ensuring adequate international health insurance should absolutely be a priority. None need to be overly expensive but it’s essential to have some form of protection in place so that your family are properly supported if something were to happen.
Nobody likes to think of their own mortality (although the past year or so may have made many of us reflect on this more than usual) but it’s a possibility that needs to be planned for.
Review Your Will, and make sure it’s up to date
People’s lives and financial positions are ever-changing and it’s therefore essential to keep an up-to-date Will to ensure that your Estate is passed on in the most efficient way possible. If you’ve assets dotted around the world your situation may be complicated, so it’s even more important to have good arrangements in place, with a suitable Will for each country.
It’s also wise to arrange a Lasting Power of Attorney if you haven’t already, to ensure that a trusted relative or friend could make decisions on your behalf if needed. There are two options to consider putting in place – a Health and Welfare LPA and one dealing with Property and Financial Affairs.
Consider your tax obligations
Make sure you are up to date with your tax reporting, residence status and your HMRC listed address and contact details. If living overseas, you’ll need to keep an accurate record of your visits to the UK to support any claim to be UK non-resident. 2021 may well have proved a tricky time if you’ve been stranded in the UK for an extended period and therefore obtaining qualified tax advice to make certain of your tax residency status would be sensible. If you have any UK tax to pay or need to complete a Tax Return for any other reason, be aware of the main UK tax reporting dates:
- File your Tax Return by midnight on 28 February 2022
- Pay any tax due by 1 April 2022 (but late payment interest runs from 1 February 2022)
Take time to consider ESG (Environmental, Social Governance) investments
There was a time when environmental, social and governance (ESG) issues were the niche concern of a select group of investors who tended to have strong ethical or socially responsible views. With times changing, many of us are now much more keen to consider ESG investment in our portfolios.
To find out more about why and how to include ESG investing within your portfolio, catch up with our latest ESG webinar.
Use your allowances
We’re each entitled to an Inheritance Tax (IHT) exemption of £3,000 on a ‘use it or lose it’ basis. If you didn’t make use of last year’s exemption, you can carry it over to make a £6,000 gift this year: a sensible tax planning exercise. If you live overseas, it may be useful to gift assets without paying UK tax while you remain UK non-resident. Do remember that if the gift is above your annual allowance then the ‘seven year rule’ applies; you may need to survive for seven years from the point of making it for it to be free of IHT.
IHT is generally charged at 40% for Estates worth more than £325,000. If you’re planning on leaving a property (it must be your primary residence) to a direct descendent, they will also be entitled to a further £175,000 Residential Nil Rate Band – meaning you can pass up to £500,000 of your Estate before IHT is due. Generally, if you’re planning to leave all of your Estate to your British domiciled spouse, both allowances can be used meaning up to £1 million can be inherited before tax applies.
With the UK government having borrowed so much to cover the costs of the Covid-19 bill, it’s inevitable that tax rises will be needed to pay it back. It’s expected that Capital Gains Tax will be a focus with potential adjustments to the allowance (currently £12,300 per annum) and/or the rates (10% or 20% for securities, and 18% or 28% for property). As changes are announced, and if you’re worried they may affect you, please seek professional advice.
Keep your investment strategy tax efficient
When it comes to investments your planning should always take account of tax so that your assets, liabilities and income are structured in an efficient way. This is even more important given a more transient nature of work for many in the last few years due to the changes in the economy and Covid-19. Your short or long-term plan may include relocating and therefore is it important to understand how this might then impact your residency and overall financial strategy.
If you’re abroad and planning to return to the UK, consider your investments and the effects of UK tax in advance (six to 12 months is preferable). And when you become UK tax resident make sure you use the allowances provided including Individual Savings Accounts (ISAs) which offer significant tax breaks.
Stay level-headed
Staying on course with your investment strategy and considering the long-term impact of your financial decisions is integral. It is important to keep trust in your financial plan; it’s very easy as markets rise to become concerned about your investment approach, but this can be reactive, and you should ensure focus on the long term. Those who try to time the markets very rarely get it right and will most likely regret making a knee-jerk reaction. It’s important to remember your original strategy and timeframe. Appointing a financial professional can help guard against the tendency to react unnecessarily to market news, which may reduce unnecessary stress too.
Taking time to review your financial position is always a useful exercise and can help you ensure that your plans remain on track. Our experts are here to help you so please get in touch if you have any questions about your personal situation. We also have a broad resource library full of videos, downloadable guides and articles to help you. You can find the resource library here.
