In The Press
Author Richard T Lishman, Managing Director of money4dentists, a firm of specialist Independent Financial Advisers who help dentists across the UK manage their money and achieve their financial and lifestyle goals.
Planning for Your Future
Balancing your portfolio and managing finances, on top of daily clinical and administrative duties, is enough for any dentist to be getting on with, but for those with long-term goals, future planning must also be incorporated into day-to-day considerations.
Naturally, as a busy practitioner, keeping on top of savings and investments is not necessary your primary priority, but it is important nonetheless – especially if you wish to put aside money for future projects, family commitments and retirement.
Profit from a Portfolio
Placing money in long-term investments is one viable way of maximising profits – when managed well, of course. Indeed, if balanced and nurtured correctly, with the aid of an Independent Financial Adviser, there is the potential for you to use your assets long into retirement, if that's what you choose to do.
Spreading one's investments among different classes of assets is a practical way to do this, as it helps ensure that the portfolio is protected should one asset start to underperform. There are four main types of asset classes that a practitioner can invest in, which are:
Cash – this involves putting your money in a savings account or building society to accumulate money from the interest rate
Bonds – a bond is a debt investment in which an investor loans money to a corporate or to the government for a fixed period of time at either a variable or fixed rate of interest
Shares – depending on how many shares you hold, you may get a proportion of any profit the company makes
Equity Funds – a fund that invests in stocks or 'equity securities'
Property – investment property is when property, land or a building provides rental income and/or capital appreciation
Within these investments, however, it is always important to consider the impact tax-efficient investing could have on one's returns. By putting money into assets that offer Income Tax relief and protection from Capital Gains tax and Inheritance tax, capital venture can be increased and maximised to its full potential.
Individual Savings Accounts (ISA)
It is well noted that an ISA is a highly efficient tax wrapper. As a result, these accounts are a great starting point if you are hoping to save for the future. They are also extremely flexible. Although it is possible to hold a combination of various ISAs at any one time, it is always prudent to consult a specialist adviser on which accounts are most applicable and advantageous to you. As of April 2017, there will be six different ISAs on offer.
Cash ISAs and Stocks and Shares ISAs are particularly popular, especially as both guarantee that up to £15,240 can be saved tax free in 2016. Plus, in 2017/18, the maximum is set to increase to £20,000. While interest rates on Cash accounts are currently quite low across the board, this won't necessarily always be the case. What's more, it provides the freedom to change to a Stocks and Shares account, which offers the additional benefit that investments are protected against both Income and Capital Gains Tax. Other available accounts include a Help to Buy ISA, which is specifically for first-time buyers and is open to new account holders until April 2019, a Junior ISA, which can be used to build up savings for university fees and so on and an Innovative Finance ISA, which is for income seekers willing to take risks.
As of April 2017, a Lifetime ISA scheme will also be on offer to individuals under 40 looking to save for either a first house or retirement. Offering savings of up to £4,000 per annum tax free, with the added bonus that the government pay in £1 for every £4 saved, there is scope for it to be an effective means of saving for the future.
National Savings and Investment (NS&I)
NS&Is can be a tax-efficient option too, with premium bonds and other bond-type savings known to be particularly efficient. However, the investment savings and investment products available to the public from the government-backed agency get changed regularly, so if you are looking to put money into NS&Is, make sure you keep an eye out for upcoming opportunities including:
- Direct Saver, which is a savings account
- Direct ISA, which is a cash ISA
- Fixed Interest or Index-Linked Savings Certificates
- Guaranteed Growth Bonds and Guaranteed Income Bonds
- Guaranteed Equity Bonds
- Income Bonds
- Children's Bonds
- Premium Bonds
However, it is important to note that because of the recent cuts that have been made to rates on a number of savings and bonds options – including the Direct ISA that has now dropped from 1.25 per cent to 1 per cent and the Direct Saver that has decreased from 1.1 per cent to 0.8 per cent – investments may not produce maximum returns at this present time.
Venture Capital Trust (VCT) and Enterprise Investment Scheme (EIS)
Other areas where money can be invested in a tax-efficient manner are VCTs and EISs. When you invest in a VCT you can benefit from up to 30 per cent Income Tax relief per annum, up to £200,000 – though to be eligible for this you have to keep shares for at least five years – as well as tax free dividends and no Capital Gains tax. On an EIS, an investment of up to £1 million can be made, which means there is more potential to be rid of your entire year's income tax liability.
Perhaps the most popular investment that people put money into for retirement is a pension – a tax free pot of cash that you, your employer and sometimes the government pay into, which can then be withdrawn later on in life. Any growth in pension funds is free from Income Tax and Capital Gains Tax as the government actively encourages individuals to take responsibility for their retirement. As it stands, the tax relief is 20 per cent for basic rate taxpayers, while top rate taxpayers can claim an additional 25 per cent.
With a pension, there are many aspects to give thought to, including when to start, when to increase payments, and so on. While what you decide to put in is within your control, there are certain limitations to consider.
Changes to the Lifetime Allowance (LTA), for instance, could impact upon high-earners, as those that go above the £1 million limit will be required to pay a rate of tax at either 55 per cent, if the money is taken as a lump sum, or 25 per cent, if the money is received in pension payments or cash withdrawals.
A Tapered Annual Allowance was also introduced in April 2016, which means that those who earn above £150,000 are now affected by a reduction of £1 for every £2 of excess income – a reform that could potentially affect pension inputs for high-income earners.
Making a Plan
Getting a retirement plan in motion and making investments can be a complex and time-consuming task, especially for those who are interested in creating a bigger portfolio. Utilising the help of an Independent Financial Adviser, such as those at money4dentists, can help you plan for your future in a way that is beneficial and appropriate to you and your personal aims, objectives and circumstances.
When it comes to retirement planning, sooner is always better than later, so for peace of mind, start planning for your future today.