For many people, the New Year is a time to review financial goals.

If your income has increased or become more complex due to a promotion at work; if you wish to make the most of bonus payments or dividends; if you are planning on starting or selling a business; or if you wish to help out younger generations then financial planners may be able to help. We also work with individuals who want to leverage a recent bonus or dividend payment effectively. 

A financial planning process should evaluate your current position in order to align your finances with your short and long-term objectives. There’s no one-size-fits-all approach and for those with a complex income profile, it may require weighing up a number of different financial structures. Here, are some of key considerations and options available for individuals and their families.

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  • What exactly is meant by ‘financial planning’?

    The purpose of financial planning is to help individuals ensure their money does what they need it to do at different times, in the most effective way.  

    This involves maximising tax and administrative efficiency, whilst taking care to ensure that you have access to sufficient capital for your needs, when you need it.

    In seeking to achieve this I work closely with my investment management and private banking colleagues to ensure that all of your strategies are aligned. 

  • When it comes to making a financial plan, what are the most important considerations?

    Just as we talk about diversification of investments, we should also look at the diversification of the structures that hold those investments. These structures might include General Investment Accounts, ISAs, Pensions and Offshore Bonds, among others. We encourage our clients to spread their assets among financial structures, as well as asset classes, where appropriate. However, individuals have unique requirements and not every financial structure is relevant for everyone.  

    Another important consideration is flexibility. As the pandemic has taught us, life can be uncertain because personal circumstances, the economy and the legislative environment are all subject to change. Therefore, any financial plan needs the ability to flex when required.

    Lastly, while a robust financial plan is crucial, it’s essential that it dovetails with an investment plan. We advise our clients to work with a financial planner to agree a strategy for how their investments are going to be held, before then seeking specific investment expertise regarding the underlying investments within those structures.

  • What’s the first stage of developing a financial plan?

    The first stage of any financial plan is to make sure your current position is secured. This might involve putting in place measures such as income protection, to ensure you have necessary financial support if you become unable to work.

    We then look at a client’s financial objectives. Here, thinking about the time frame is key. We break objectives down into short-term goals (the next 1-3 years), medium-term goals (3-10 years ahead) and longer-term goals of more than 10 years in the future.

  • What should I be considering when it comes to a short-term financial plan?

    In general, a good short-term plan should make sure that the capital you need for the next three years is accessible and isn’t exposed to volatility. In this respect, we encourage clients to consider any forthcoming liabilities such as their tax bill, as well as having a cash contingency fund. 

    For this short-term cash fund, returns aren’t a significant consideration. Instead, we’re thinking about making sure the money is available. Financial planning best practice is usually to set aside at least six months’ expenditure as part of an ‘emergency fund,’ as well as identifying and accounting for any liabilities you have coming up over the next three years. 

    When you hold this money in a bank account, it’s worth noting that at the time of writing – December 2021 – the financial services compensation scheme protects £85,000 per individual, per institution should the organisation become insolvent. 

  • What is the next step once I have a contingency fund in place?

    Once you’ve done your contingency planning, the next step is to look at your pension. Your objective here is to provide you and your family with a tax-efficient vehicle in order to produce an income during retirement.

    Most of you will be very familiar with the information around pensions, but in summary, individuals can make an annual gross contribution to their pension of up to £40,000 per year (or less if their income is below £40,000). For those who don’t pay tax, the maximum contribution including tax relief is £3,600. Pension funds can currently be accessed from the age of 55, but this is moving back to age 57 from 2028. From a taxation perspective, up to 25% of a pension fund is available as a tax-free lump sum (with the remaining 75% subject to income tax rates when drawn). 

    Pensions are not generally subject to inheritance tax, and therefore some types of pensions may also assist with estate planning as wealth can be passed through generations. Since new legislation was introduced in April 2015, you may be able to pass on the funds within a pension to a surviving beneficiary, along with the fund’s ‘tax wrapper’. Tax may be due if the total sum in a pension exceeds the Lifetime Allowance when you access it, reach aged 75 or transfer overseas. 

  • What about ISAs?

    Beyond pensions, the next key financial structure is your ISA allowance. ISAs and Junior ISAs (JISAs), which can be accessed once a child has turned 18, provide a virtually tax-free saving environment that can be used to supplement other income or provide capital in the future. 

    With an allowance of £20,000 per year for ISAs and £9,000 per year for JISAs, these can be a good foundation for future planning. They offer what’s known as a ‘use it or lose it’ allowance, so should be used every year if appropriate. Some ‘flexible ISAs’ also offer the ability to withdraw funds and then reinvest them within the tax year, which may be suitable for clients with cash-flow concerns. 

  • I’ve looked at my short-term objectives, and I’ve set up a pension and an ISA. What should I consider next?

    Once you’ve set up your pension and are using your ISA allowance, it’s generally time to think about gaining some exposure to investment markets via a General Investment Account (GIA). These accounts are usually taxed on an arising basis and you pay the appropriate marginal rates for income, rent, interest and dividends.

    GIAs have an annual Capital Gains Tax (CGT) allowance of £12,300 per individual, and this can’t be carried forward. Losses can offset gains and can be carried forward, but bear in mind that they have to be registered with HMRC after four tax years.

    For high-net-worth individuals, something to think about is that assets can be transferred between spouses on a no gain / no loss basis. I have come across circumstances whereby the higher earning spouse is holding the majority of the directly held assets, which can be inefficient from a tax perspective. Because assets can be transferred between spouses, this means there’s an opportunity to transfer assets to the lower earning spouse, who will inherit the base cost and be able to use it against their own CGT allowance. 

    When investing directly please speak to your relevant advisor.

  • Are there other options that could help me achieve my long-term objectives?

    Where assets are of a sufficient size, it may be appropriate to consider more complex financial structures, especially when planning ahead for your family and future generations.

    There are typically five main structures to be aware of. Not all of these structures will be suitable for everyone, and it’s important to seek legal, investment and accountancy advice, in addition to speaking with a financial planner before taking action.

    Venture Capital Trusts (VCTs)

    Venture Capital Trusts, otherwise known as VCTs, offer exposure to smaller, unquoted companies through a collective investment listed on the London Stock Exchange.

    From a taxation perspective, investors can claim income tax relief of 30% on investments up to £200,000 per year, provided shares are held for a minimum of five years. Dividends from VCT shares are exempt from Income Tax, and realised gains are exempt from CGT.

    When it comes to the types of VCT available, as well as generalist VCTs, there are also AIM VCTs that specifically invest in companies on the alternative investment market, and specialist VCTs that target a particular sector such as healthcare or technology.

    As VCTs invest in a variety of underlying holdings they offer a good opportunity for diversification. Bear in mind, however, that the attached fees can be quite high; it’s common to see an initial fee of around 5.5%, with an annual fee around 2%. We sometimes see clients using this structure on a rolling basis, meaning they invest in VCTs every year and reinvest the tax relief either in pensions or more VCTs.

    Enterprise Investment Schemes (EIS)

    As an alternative to VCTs, EISs offer benefits to investors wishing to diversify into smaller, growing businesses. Investors can claim income tax relief of 30% on investments into a qualifying EIS up to the value of £1m. This increases to £2m if any investment above £1m is into ‘Knowledge Intensive Companies'.

    Compared to VCTs, EISs have a shorter holding period, with realised gains exempt from CGT, providing the investment has been held for three years. EIS shares also qualify for business relief, and can be left to beneficiaries free of any inheritance tax provided they are held for at least two years.

    Note, though, that although the minimum holding period is three years, in reality that time frame is often longer. Since the exit is via management buyout, it is likely investors may hold the shares for much longer than three years.

    Lastly, it’s important to consider when weighing up an EIS versus a VCT that EISs are comparatively higher risk, as they involve investment in smaller individual companies.

    Offshore Bonds

    These are effectively investments written under insurance law; they’re made through an offshore life insurance company, with popular jurisdictions including Dublin and the Isle of Man.

    The fund returns are largely free of both income tax and CGT, with permitted annual withdrawals of up to 5% of the initial investment, with no immediate tax liability. While gains are subject to income tax, eventual taxation may be reduced through a number of tax reliefs.

    As a wealth structuring tool, Offshore Bonds can be useful for succession planning or income planning in retirement. This is because the bond can be assigned to another individual without an immediate tax charge, making it suitable for passing onto children or grandchildren, for example for future education charges. 

    Family Investment Companies (FICs)

    For high-net-worth individuals who want to look at alternative succession planning options, another structure to consider is a Family Investment Company (FIC).

    A FIC is technically a corporate entity; it is often a Limited Company, which makes investments on behalf of shareholders, rather than carrying out a trade. The tax treatment of investment assets within the FIC can enable faster growth than if held personally. With careful structuring a FIC can be set up in such a way that it not only provides efficient income for the original investor, but can also incorporate some succession planning.

    FICs are subject to 19% corporation tax, which is generally lower than the personal tax rate. Furthermore, most dividend income from equities held within the FIC is tax exempt.

    Expert advice is essential when it comes to FICs. As with Trusts, financial planners can work with an expert to set them up on a client’s behalf.


    A Trust is a legal relationship created when one person is given assets to hold for the benefit of another. They’re most commonly used by parents and grandparents as structures through which to pass assets on to future generations.

    Fundamentally, Trusts revolve around the control and protection of assets, and with this in mind it’s key to note that you are giving up access to money when you utilise Trusts in any form. If it’s something you’re considering, you therefore need to be comfortable that you have everything you might need for the future.

    A Trust usually has three parties: a settlor who establishes the Trust; a beneficiary (or beneficiaries) who is going to benefit from the Trust; and a trustee who holds the Trust property under the terms of the Trust, for the benefit of the beneficiary.

    There are two types of Trust available. Absolute Trusts are usually used by grandparents to make provision for grandchildren, whereas Discretionary Trusts are a more flexible form of Trust, allowing beneficiaries to make decisions about where the assets go. 

  • How can Investec help?

    Whatever your objectives, and whatever stage you’re at in your financial planning, having a well-established and robust financial roadmap can help you make informed decisions about you and your family’s future.

    Whether you’re buying a new property, launching a new venture, planning for retirement, or looking to help future generations, financial planning can help give you the answers you need.



This media is for general information purposes only and any reference to Tax should not be used or relied upon as professional advice. It is based on regulations in effect at the time of publication and no liability can be accepted for any errors or omissions, nor for any loss or damage arising from reliance upon any information herein. It is advisable to contact a professional advisor if you need further advice or assistance as the tax implications can vary depending on an individual’s personal circumstances and may be subject to change in the future.