How can accountants grow their wealth?

Like most skilled and educated professionals, accountants work hard for their money. And it is only natural that they want to make the most of it. Yet our report, Financial Wellbeing: more than just pounds and pence, found that feeling happy with the state of their finances is the biggest challenge to people’s financial wellbeing. So what can accountants do to make their money go further and improve their financial wellbeing?

Saunderson House regularly advises clients on tax-efficiency. This is one of the factors that can have the biggest impact on an investor’s overall wealth. By some accounts, the burden of tax in Britain has reached its highest point in almost fifty years, which has affected a significant number of higher earners. But before suggesting ways that you can invest more tax-efficiently, it is important to acknowledge some common pitfalls that can adversely impact investors.

Invest in the long term

Too often, people are easily distracted by geo-political events and short-term market volatility when considering their financial position. But investors can relieve themselves of unnecessary headaches by adopting a more objective and long-term view. By paying attention to company fundamentals, investors are more likely to reap the rewards. A company’s balance sheet, cash flow and overall management are much better indicators of sustained success than the latest narrative around a new business product.

Similarly, investors should be wary of reading too much into how stocks fare on the open market. Research has shown that markets tend to overshoot pricing in both good and bad news. Those that take a step back from the short-term volatility and assess the more established trends are in a much stronger position to invest wisely.

Five ways to increase your tax efficiency

With the end of tax year fast approaching, now is the time to review your financial situation and ensure you have made the most of the allowances and exemptions that are available to you. While accountants are well-informed about company taxes, we have found that fewer are confident when it comes to their personal finances. The following checklist should make it easier to identify the potential opportunities to increase your tax efficiency:

1. Contribute to your pension: Most people can get tax relief on contributions up to £40,000 gross or 100% of earnings (although the limit is lower for those earning over £150,000). And as long as you completely exhaust this year’s allowance, you can carry-forward unused contribution allowances for the past three years up to a further £120,000 gross.

2. Pay into an ISA: There are lots of different ISAs available and you can save up to £20,000 a year into these tax-free accounts. If you are between 18-39 years old, you should consider opening a Lifetime ISA and contributing a part of your annual ISA allowance, especially if your pension contributions have been maximised.

3. Make pension or ISA contributions on behalf of others: If you have already contributed as much as you can to your own pension and ISA, we advise considering supporting family members with theirs? You can add up to £3,600 gross (£2,880 net) into a pension if the beneficiary is not earning income, or up to 100% of their earnings to a maximum of £40,000 gross (or more, see point 1) if they are. You can also contribute up to £20,000 into an ISA, £4,000 into a Lifetime ISA (though this limit is included in the overall ISA allowance) or £4,260 into a Junior ISA on behalf of others.

4. Take profits from your existing investments: If you hold a stocks and share ISA, you don’t pay tax on any dividends from shares and you don’t pay capital gains tax on any profits made from the investments. Similarly, all interest earned in a cash ISA is tax free. Additionally, if you have money invested in the stock market or elsewhere, you can crystalise gains of up to £11,700 without paying Capital Gains Tax.

5. Invest in other options: If your pension and ISA contributions are maximised, you could explore the potential of Enterprise Investment Schemes, Venture Capital Trusts and Seed Enterprise Investment Schemes. These investments should be considered in the overall context of your portfolio, as in isolation they are deemed to be higher risk and less liquid.

Of course, the end of one tax year marks the beginning of another. It is a good habit to get on the front foot and maximise annual allowances as early as possible in the new tax year to shelter investments from tax for the maximum possible period.

For accountants to enjoy the fruits of their hard work, they cannot afford to overlook the tax-efficiency of their investments. In order to maximise your wealth and financial wellbeing, we always recommend that people talk to a qualified professional financial adviser about which options are best for their individual circumstances.