Amid all the gloomy news this week there was a chink of light for Financial Planners, at least on the potential new business front.
A new report suggests that a boom in tax-efficient investment advice is on the way and planners can thank the government for that.
More specifically, the freezing of income tax thresholds. These were frozen in the March 2021 Budget for five years and will not be reviewed until the 2025/26 tax year.
The net effect is that more and more people are being pushed into the higher rate bands and they need help.
Soaring inflation is also leading to record pay rises for some, pushing even more into the higher rate bands.
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I wonder how many better paid workers realise that a big chunk of their hard-earned pay rise will actually end up in the hands of the Chancellor? A nice windfall for the Chancellor, not such good news for the rest of us.
The new research from investment provider HSBC Life (UK) predicts rising demand for tax advice from advisers’ clients as a result of all this and I’m sure they are right.
It’s not just frozen tax thresholds. Many other tax benefits have been cut back over the past few years, such as dividend benefits for directors and other tax reliefs too.
The net result is that tax is getting more complicated and creating rising tax bills and the value of a Financial Planner in mitigating some of this burden is growing.
Interestingly, the study found that 82% of advisers’ clients are higher rate or additional rate taxpayers but two out of five advisers do not routinely explain the benefits of tax efficiency on investments.
Incidentally, the research found that 50% of the surveyed financial advisers’ clients were higher rate taxpayers while nearly a third (32%) are additional rate taxpayers. No surprises there but it does remind us that many clients of Financial Planners are among the people most burdened by taxation and most affected by the rises.
According to the study, advisers say that clients see taxation as second only to inflation as the biggest threat to their invested capital and future financial wellbeing.
With this in mind, the research also suggests that not enough advised clients make full use of their tax allowances. There is much to do here and much work for Financial Planners.
The recent improvements to pensions tax allowances make retirement planning an even more attractive option for higher rate taxpayers.
Financial Planners are well placed to benefit from this increasing unhappiness with rising tax take. It’s right that we all pay our fair share of tax but taxpayers who do not make full use of their allowances are leaving money on the table. They need advice.
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Kevin O’Donnell is editor of Financial Planning Today and a journalist with 40 years of experience in finance, business and mainstream news. This topical comment on the Financial Planning news appears most weeks, usually on Fridays but occasionally other days. Follow @FPT_Kevin
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