With statistics revealing the mean salary for employees working in the UK’s financial services sector is a third higher than the national average across all industries, it’s safe to assume senior roles come with big rewards.
The average UK pre-tax salary is around £32,000; in financial services, it’s more than £43,000 – and that’s before you throw in bonuses, which are a big pull for people to build a career in the sector. Only utilities-related professions seem to have higher earning power, according to the stats.
If you’re lucky enough to work in a role that provides you with a high level of financial security, you should closely consider the best options to maximise your money. Well-thought through wealth management is key to maintaining the lifestyle you’re used to, plan for your retirement, and look after your loved ones.
We regularly help individuals working in financial services who don’t have such a strategy in place. This is often due to them lacking the time to investigate the possibilities of wealth management. But it’s also because of the complexity of financial products and regulation, which understandably puts some people off discovering more about this ‘money minefield’ when their job is complicated enough.
How to make your wealth work harder for you
Fortunately, there are lots of ways to make your wealth start to work harder for you, and for your family. Here’s a whistle-stop tour of just a few options we can help you with:
Pensions and ISAs – These are the products our clients are most likely to have explored, either through payroll or privately. They offer useful levels of tax relief, and they’re relatively simple to put in place and manage.
For example, high earners would usually fall into the 40% or 45% tax bracket. As ISA withdrawals are tax free, utilising the allowance shields wealth from high income tax. It’s all about ensuring you’re receiving the right advice to maximise your allowances.
Alternative tax wrappers – A commonly used phrase which might not mean much to individuals who aren’t involved in wealth planning, even some of those working in financial services. But understanding tax wrappers, and which will work for you, is vital to make your investment portfolio as efficient as possible – particularly if you’re already using up pension and ISA allowances.
Beyond ISAs and pensions, you can access other beneficial products such as offshore investment bonds – for example – which benefit from gross roll-up, meaning no tax within the fund. If it was an onshore bond, the gains are taxed at 20% within the bond: it’s a tax the UK fund needs to pay to HMRC. In contrast, an offshore bond is located in a tax-free jurisdiction so the gains can “roll up” without a 20% charge.
It’s vital to always seek investment advice to determine suitability, as potential withholding taxes must also be considered – alongside, of course, extracting any gains from the bond when you need to.
VCTs/EIS – Venture Capital Trusts (VCTs) are an exciting way to manage your wealth. These are tax-efficient collective investment schemes designed to boost UK start-ups and scale-ups while providing income and capital gains for investors, in exchange for the increased risk you’re taking on.
The Enterprise Investment Scheme (EIS) is similar. For 30 years, investors have been able to fund small businesses in the UK via the scheme. Typically, they are sub-£15m in gross assets and privately owned (although some list on AIM). Tax-free growth, income tax relief up to 30%, and even inheritance tax breaks are among the rewards for investors.
Is home really where the heart is?
Those are some of the investment alternatives any serious financial planning adviser should recommend, but let’s turn our attention to another that splits opinion: property.
For the past 25 years or more, there’s been a trend for high earners to plough investment into property such as housing stock. It figures – interest rates had been unusually low for two decades, and at least at the start of that cycle average house prices were far more attractive than they are now.
If you took advantage of this environment years ago, you’ll now be reaping the rewards. But property investment today comes with many warnings. Buy-to-let landlords – a trend encouraged by ubiquitous property management courses, proclaiming anyone can snap up and manage a portfolio – are beginning to encounter higher interest rates, struggling tenants and the introduction of Section 24 of the Finance (no. 2) Act 2015, meaning mortgage interest can no longer be deducted as an expense by landlords.
The profitability of property has been vastly affected as a result. Buy-to-let also contributes greatly to the nation’s inheritance tax bill, something which might not be apparent when you’re starting out.
In other words, think before you leap into this popular option. And if you do own property – whether it’s your own or a portfolio – consider using your wealth to pay down the mortgage. Most fixed-rate products allow 10% annual overpayments. The return is the interest rate of the mortgage, and it’s guaranteed. It could be an attractive option while interest rates remain stubbornly high.
ADL is on hand to help high earners make the decisions your wealth demands, to make your money work harder for you. Book a free consultation with us today.