Life Stage Appropriate Tax Planning

For more experienced savers there’s always a danger that they look at the approaching end of the tax year with a degree of complacency.

Understandably, they take the view that they’ve had the advice before about using allowances and meeting deadlines and they know exactly what to do by now.

That may well be the case, but we would urge you to guard against falling into the trap of thinking that what was appropriate for your circumstances last year might also apply for this year end.

There are four different client life stages at Reeves and the way in which you should approach tax planning can vary for each one.

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The Essential stage service is for clients that are several years away from retirement. We want to ensure that clients are making the best possible decisions for their retirement planning as early as possible. Taking all assets and provisions into account, we aim to answer the question, “Am I on track to meet my retirement goals?”

Client Case Study

Wayne Atkinson is a client in the Reeves Essential life stage. Aged 52, he has managed to save £60,000 in cash but he has no specific plan for this money and, due to low interest rates, is getting a poor return on it. He is a busy man and has little time to devote to looking after savings and doesn’t want too many investment vehicles.

With Wayne, we looked at his financial, business and family situation and, together, we decided that £30,000 was a suitable level of cash that he needed to have available for unforeseen circumstances. We also confirmed that he had not used his maximum allowed pension contribution for the year, so we advised him to pay the remaining £30,000 of his savings into his Standard Life Elevate Personal Pension.

He received an immediate bonus from the taxman of £7,500 in income tax relief on this, which is added to the £30,000 to achieve levels of return far beyond what could be earned on cash deposit. Furthermore, any growth will be tax free.

The Growth stage typically covers the decades before the age of about 50, when you are increasing your earning potential, building your wealth, and raising a family.

This when people are reaching their maximum earnings potential. They’re still providing for their families but are also trying to accumulate wealth. For them, managing their earnings tax efficiently is of crucial importance.

Client Case Study

Pauline Oates is a high earner with a net income of £105,000, but, although she has a cash emergency fund, she has no surplus savings.

We advised her to consider a salary sacrifice scheme with her employer, by which she would give up enough of her pay – instead receiving additional pension contributions - to bring her earnings to below £100,000. By doing this, she regains her full tax free personal allowance, earning an additional £930 into her pension each year.

We also helped her to complete a tax self-assessment form. The employer was making contributions to the workplace scheme through the relief at source method, so Pauline was only receiving basic rate tax relief when she was entitled to the higher rate relief. Doing the self-assessment allowed her to reclaim higher rate tax on the pension contributions.

We also advised Pauline to hold her cash savings in joint names with her partner John. The personal savings allowance for a client who is a higher rate tax payer is £500, so any interest on savings over this amount is taxed. By holding in joint names, you can use both personal savings allowances.

The next stage is pre-retirement, the years leading up to retirement, the key is to build up pension savings as much as possible. It’s also important for couples to do their tax and retirement planning as a couple.

Client Case Study

Ian and Mary Parsons are in the late 50s and want to retire in the next few years. Ian has much bigger pension savings than Mary, who works part time on a self-employed basis, earning £10,000 a year. Each year Ian pays into his pension using all his personal allowance while Mary makes no contributions to hers. They have £40,000 cash in the bank.

Our advice was to use their cash savings to pay £8,000 into Mary’s pension. This was immediately topped up with £2,000 from the taxman in the form of personal tax relief. We advised them to do this every year to take maximum advantage of this allowance. It also means that when they retire Mary will have built up her pension in a tax free environment, which they can also draw upon, making full use of her personal income tax allowance.

Throughout the course of the retirement life stage, we usually advise our clients on drawing down from their pension pots in a way that means they pay as little tax for as long as possible. We also advise them on their estate planning, helping them to draw up wills and powers of attorney.

At Reeves we are there for them at every stage of the journey, strategically building towards their retirement goals in a way that is affordable and appropriate to their changing circumstances. But, no matter what part of life’s journey you are at, we can help you work towards your retirement dreams.


The content of these articles are for information only and should not be seen as advice or recommendation to act. If you do wish to take action, seek independent advice first as your circumstances may be different to what has been discussed in these articles. When investing, your capital is at risk and it may go down as well as up. You may not get back the original capital invested. Pension investment should be seen as a long term investment. Please note that pension legislation can and may change in the future.

**Names have been changed from real client case studies, with written consent. All other names and studies are fictional to highlight our advice.

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