New year, new financial goals?

Please note: The article is written with a UK audience in mind, and does not constitute advice or any form of recommendation. Barclays Private Bank does not offer tax advice, and professional advice should always be sought.

The beginning of a new year is often the trigger for personal reflection and goal-setting – both for the year ahead, and with the longer term in mind.    

In the UK, it also coincides with the final stages of the tax year, and a time when many people are getting their financial affairs in order before the January (tax filing) and April (tax year end) deadlines.  

All in all, taking the time to step back and think properly about aspirations and ambitions (whether financial or not), is rarely a bad idea.  

In this article, we reflect on some common financial planning discussion points.  We’re publishing this in January, but in reality the themes are broadly applicable year-round.  

Being aware of the options

When it comes to wealth accumulation, some people can fall into the trap of being laser-focused on the short term, at the expense of everything else. Coming up for air every now and then can make goals, and even pitfalls, easier to identify. 

With that in mind, there are some common ‘efficiencies’ which needn’t be neglected, even for holders of considerable wealth. As an example, each UK tax year affords an individual a £20,000 Individual Savings Allowance (ISA). On the surface, it’s relatively small change for HNW and UHNW individuals, but the cumulative potential – for example, when family allowances are leveraged over time – offers food for thought. (It’s worth stating here that Investment ISAs are not without risk, and you may get back less than you invest. Their common appeal is that gains and income made within the ISA wrapper are tax free.) 

Meanwhile, for investors with a higher tolerance of risk, there are vehicles such as Enterprise Investment Vehicles (EIS) and Venture Capital Trusts (VCT), available.  

While successful estate planning can be complex, and often requires expertise and skill, there are invariably a few simple questions worth asking on a regular basis, such as: Are you taking advantage of the financial tools readily available to you?  Do you know all of the available options?  

Taking care 

Effective long-term financial planning is rarely rushed, and even when your plans are in motion, there’s often an element of fine-tuning required along the way.  

Pensions remain one of the most efficient savings vehicles over the long term. However, they are not without their own risks. 

For example, did you know that the annual contribution allowance is capped at £40,000? Or that the lifetime limit you can save in all forms of pensions is currently capped at £1,073,100? Both thresholds were left untouched by the UK government in 2022, even during the infamous ‘mini budget’ upheaval in September. It means that as wealth levels gradually rise in the UK, more pension pots risk breaching the maximum lifetime limit.  

For higher earners, one of the more common pitfalls, is breaching the annual contribution allowance by virtue of the allowance being gradually tapered down if income is above a certain level (broadly deemed as above £200,000 from all sources). This allowance can be tapered down to as little as £4,000 per annum if total income is over £312,000 (at the time of writing). 

While pensions themselves are efficient, having multiple pots with different providers is anything but. Does that resonate with you?   

Preparing for the worst 

As part of your new year resolutions, might this be the year to sort out your Will? If it is, then there are a few common misconceptions to be aware of. First, that being married automatically leads to a spousal transfer of assets upon death. And second, that divorce nullifies an ex-spouse’s original entitlements. Neither is true. 

In reality, when there are children involved and if assets are held in a single name, the absence of a Will (even for a married couple) could potentially see assets split 50-50 between the remaining spouse and the children (with the children’s assets going into trusts until they’re 18).  

Similarly, unless a Will is changed in conjunction with the divorce, then the ex-spouse can potentially be entitled to a share of the estate. 

Another incorrect assumption frequently made is that writing a Will is a one-and-done activity. Given how quickly life moves, and how fast circumstances can change, a Will can easily age badly. 

Against this backdrop, useful questions to ask might include: Has my family got a financial safety net if I die? Has my estate changed since I last made a Will? Have relationships with my beneficiaries changed in recent years, and does my Will reflect this?  

You can read more about this in our separate article: Where there’s a will, there’s a way  

Thinking of donating in 2023? 

Gifting is a topic close to many people’s hearts, and private wealth can play an integral role in addressing many of society’s biggest issues.  

For anyone contemplating supporting a cause, either during their lifetime or as part of a posthumous donation, it can be worthwhile tying it in with wider estate conversations. Rarely is the most meaningful impact achieved through fast, ad hoc donations. (That said, there is a still a place for that type of gifting, for example when natural disasters demand urgent support). 

If 2023 is to be the year when you donate, then Gift Aid could play a role. It’s a tax relief for UK donors, and an opportunity for recipient charities to increase the funds gifted to them.  

In summary 

The new year is as good a time as any to revisit financial goals and planning. Sometimes that may lead to changes being made, while other times it may simply confirm that you’re on the right track for now. The important thing is to recognise that life is not static, which means your financial plans can’t afford to be either.  

Asking yourself some simple-but-important questions regularly, is one way of keeping your wealth and your goals in sync.  

Best wishes for the new year. 

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