Maximising tax efficiency: post-new tax year strategies for advisers

What is tax efficiency?

Tax efficiency is the art of managing your finances to reduce tax liabilities and maximise post-tax returns. It's about strategically using tax allowances, deductions, exemptions, and credits to ensure you or your clients keep as much of their money as possible. 

Mastering tax efficiency is a cornerstone of comprehensive financial planning for financial advisers. It directly impacts their clients' financial well-being and long-term wealth accumulation. 

Being tax-efficient means helping your clients pay no more tax than necessary, ensuring they retain the maximum amount of their income and gains. This involves understanding complex tax laws, leveraging available tax reliefs, and employing tactics such as timing income and charitable contributions.

How to increase tax efficiency?

Advisers can discuss several strategies to increase tax efficiency with their clients. These methods help reduce the amount of tax paid and ensure that clients make the most of their financial resources. Advisers should focus on these strategies after the new tax year to set the stage for an effective tax plan for the upcoming year.

Tax planning

Tax planning is a powerful tool for optimising tax efficiency and safeguarding more of your financial resources. By strategically orchestrating your tax strategy, you can minimise tax liabilities and capitalise on available deductions and credits. It's like piecing together a complex financial puzzle to create a blueprint for savvy tax management. 

In order to navigate this landscape effectively, understanding your current financial standing is essential. This means grasping your income, expenses, investments, and financial goals. This insight lays the groundwork for crafting a personalised tax plan that fits your unique circumstances. Think of it as setting the stage for a secure financial future while ensuring you're not paying more taxes than necessary. 

Consider changing from a traditional IRA to a Stocks and Shares ISA

Considering a transition from a traditional IRA to a Stocks and Shares ISA presents an opportunity to enhance tax efficiency, especially given the current tax landscape. While contributions to a traditional IRA offer tax deductions, withdrawals in retirement are taxed as income. A Stocks and Shares ISA operates differently. Contributions are from post-tax income, but all withdrawals, including gains, remain tax-free within the ISA wrapper. In the 2024/2025 tax year, the allowance is £20,000, and you can put £10,000 into an ISA. You then withdraw £3,000.

Switching involves several steps. First, you'll need to establish a Stocks and Shares ISA account with a reputable provider. Then, you'll need to complete paperwork and authorise fund transfers from your traditional IRA to your new ISA account. 

Tax efficient investing

Tax-efficient investing is all about maximising your investment returns after taxes by selecting strategies and vehicles that minimise tax liabilities. This involves a range of approaches, like investing in tax-efficient funds such as index funds or exchange-traded funds (ETFs). These funds typically have lower turnover, resulting in fewer taxable events compared to actively managed funds. 

Another tactic is tax-loss harvesting, where selling losing investments can offset gains elsewhere in your portfolio, thereby reducing your overall tax bill. Advisers should also consider the tax implications of where assets are located. Placing tax-inefficient investments like bonds in tax-advantaged accounts such as IRAs or ISAs while keeping tax-efficient investments like stocks in taxable accounts can optimise tax efficiency. 

Invest in your retirement plan

Contributing to retirement plans, such as pensions or ISAs, is a key tax-saving strategy. Pension contributions receive tax relief at your marginal rate, cutting down your taxable income. Plus, growth within these accounts is often tax-deferred or tax-free. 

Advisers should urge clients to maximise contributions, especially if there's employer matching. Understanding contribution limits and rules is crucial for optimising tax benefits. Regular reviews of retirement savings strategies ensure alignment with long-term goals and tax incentives. It's about crafting a tax-efficient retirement plan for lasting financial security.

Use personal savings allowance

The Personal Savings Allowance (PSA) is a game-changer for tax efficiency. It allows individuals to earn a chunk of interest on their savings tax-free. For basic rate taxpayers, the PSA is £1,000, while higher rate taxpayers get £500. Additional rate taxpayers earning over £150,000 miss out on the PSA. Advisers should ensure clients understand their PSA and how to make the most of it. 

Individuals can maximise tax-free interest by strategically structuring savings accounts, such as placing higher-yield savings in accounts benefiting from the PSA. This tailored approach ensures clients use tax-free allowances before exploring other savings or investment options.

Want to work with Unbiased?

Mastering tax efficiency is not just a financial strategy; it's a pathway to securing your client's financial well-being and long-term wealth accumulation.

By exploring the various strategies outlined post-new tax year, financial advisers can empower their clients to make informed decisions, maximise tax benefits, and build a robust financial future. Whether it's strategic tax planning, smart investing, or utilising tax-advantaged accounts, staying ahead of the curve ensures that your clients retain more of their hard-earned money and achieve their financial goals.

Unbiased Pro will send leads straight to your inbox for clients seeking advice on tax-efficient planning opportunities for the upcoming fiscal year and beyond. With us, you can grow your firm sustainably.