Are financial adviser fees tax-deductible in the UK?

Are financial adviser fees tax deductible in the UK?

Many people aim to save money on taxes and may wonder if financial adviser fees are tax deductible. 

If you own a business or are self-employed and use a financial advisory service wholly for your business, financial adviser fees are tax deductible under legal and financial costs. 

Fees are not deductible if you seek financial advice in your personal capacity.

Your adviser’s fees will be based on various factors, such as the size of your assets, the length of your meetings or the time it takes to do work for you.

Most advisers charge between 1% and 2% of the asset in question, with higher percentages being charged for smaller assets and vice versa. 

Most financial adviser fees in the UK are based on one of three fee-charging structures, namely a fixed fee, a percentage of assets, or an hourly rate.

Average financial adviser fees work out to approximately £150 an hour. 

According to Legal Financial, expenses can only be legal tax deductions if they have a legitimate business purpose.

If you are a baker and purchase a cake mixer, the appliance is a legitimate business expense. However, if you’re a garden centre owner whose hobby is baking, the cake mixer is not a legitimate expense.

Personal expenses such as groceries are not tax-deductible. However, if an expense is partly for your business and partly personal, you can claim the business component in most cases.

For example, if you purchase a new mobile phone that you use for business 90% of the time, you might be able to deduct 90% of the cost. 

The important thing to remember is to keep the receipts from all your expenses, regardless of what you intend to deduct, as this can count in your favour if HMRC investigates you.

It’s also important to remember that tax laws can change every year.

It can be helpful to speak to an accountant, or financial adviser about your situation to ensure your deductions are correct.

What costs are tax deductible?

You might be wondering if financial adviser fees are tax deductible for businesses and self-employed people, what other costs are tax-deductible?

Some allowable costs, if they are for expenses solely used for the business needs, include:

• Bank, credit card, and other financial costs such as overdraft or bank charges
• Business insurance policies such as public liability insurance
• Business premises expenses such as heating and lighting
• Clothing such as uniforms
• Employee salaries or wages
• Employing accountants, architects, solicitors, or surveyors
• Marketing or advertising
• Office expenses such as phone bills
• Training courses
• Travel expenses such as train fare, fuel, or parking fees

What are some alternative ways to reduce tax?

If you cannot claim for financial adviser fees, there are some alternative ways in which you might be able to reduce the tax you owe. 

Pension contributions

If claiming for financial adviser fees isn’t an option, saving for retirement with a pension fund can offer tax relief.

When you contribute to your fund, some of the money that would ordinarily be taxed goes toward your pension. The tax relief you get is based on your income tax rate and subject to certain limits.

There are two ways you can reduce your tax with your pension contributions, including relief at source and net pay.

If you are part of a workplace pension plan, your employer will choose the method. If you have a personal pension plan, it will always be relief at source.

Dividends

You can also reduce your tax from dividends with the dividend allowance. Dividends are the money you receive from company profits when you’re a company shareholder.

If your dividends pay more than the allowance, you must pay tax on them, although dividend tax rates are lower than income tax rates.

The dividend allowance in the UK for the 2024/2025 tax year is £500. The allowance is in addition to your personal allowance (£12,570), giving you an overall tax-free allowance of £13,070.

Carry forward unused allowance

Carrying forward your unused allowance for pension contributions is another way to reduce your tax if you can’t claim tax deductions for financial adviser fees.

In the UK, most people can claim tax relief on as much as £60,000 or 100% of their earnings, depending on which is lower, every year.

If you make any contributions above this limit, they will be taxed at your marginal rate.

If you did not use your full pension contribution allowance over the last three tax years, you can combine your unclaimed tax relief to make more contributions, giving you additional tax relief on contributions higher than £60,000.

However, to be able to do this, you need to have been a member of a pension plan for every year you want to claim. 

Get expert financial advice

Even though financial adviser fees in the UK are not necessarily tax-deductible, they are worth paying to help you manage your finances, reach your goals, and plan for your future. 

Seek a financial adviser through Unbiased for expert financial advice on getting your taxes in order and reducing the tax you must pay.