Legacy planning for your family and business

Which generation is the UK’s luckiest financially?

It could be Baby Boomers, who have collectively amassed £5.5bn in assets according to Abrdn.com. Or maybe it’s set to be Millennials as they stand to collect more than £1bn of that wealth in this decade alone.

Intergenerational wealth is a regular hot topic of debate. That won’t change as we approach a General Election, and issues such as getting on the housing ladder and the cost of living continue to make headlines.

But whatever the source of your wealth, you’re entitled to protect it and make it work as hard as possible. Often, that doesn’t mean thinking only of how your loved ones will benefit when you die. It might bring into to play other aspects such as your business interests that you’ve built up over time.

Leaving a legacy can be a legal nightmare. In this article we’ll give you an expert view on how to plan for final financial matters, and ensure that your wealth – and the benefits it brings – lives on.

Under one roof: legacy planning for family

Consider the challenges that you’ve faced, and those which confronted your parents, your extended family and your grandparents. Perhaps you’ve seen your relatives struggling to invest in education, career, business; maybe you’ve even witnessed creditor claims that may have arisen due to the loss of a key family member, because of their premature death.

Now imagine life throwing the same obstacles in the path of your children – but this time the wealth you’ve left behind has been ring-fenced.

Strategic intergenerational wealth planning takes into account your financial assets, including land and property, businesses, stocks and shares, and any beneficial interest you may have in inherited wealth or lifetime settlements made by family members.

Effective planning helps to protect and secure the transfer of economic resources and their benefits from one generation to the next, giving them firm financial ground to make the most of their lives.

Unless wealth is managed carefully and strategically, it can be eroded remarkably quickly – not least by the burden of inheritance tax – meaning financial struggle for future generations.

Property, of course, is a huge factor. It plays a crucial role in intergenerational wealth due to its potential for long-term value appreciation and income generation. According to data, over-50s in the UK hold 78% of privately held housing wealth – and it must eventually find a home somewhere else.

That’s why effective wealth management involves assessing each property’s value, potential for growth and income-generating capabilities. Regular property evaluations and understanding market trends are essential to make informed decisions around property, as part of your overall wealth strategy.

Wealth managers can collaborate with families to ensure smooth property transfers to the next generation. We address legal aspects, minimise taxes and resolve potential disputes. It’s worth establishing structures like family trusts to facilitate the management and control of property assets.

Going concern: leaving behind business assets

Surveys suggest that only around a third (34%) of UK-based business directors already have a succession plan in place.

Business owners have a different layer of challenges – subject to the stage of their business – which must ensure business succession issues are carefully taken into account.

The earlier you begin business succession planning, the better. Leave everything to chance and there could be devastating consequences not just for your loved ones and beneficiaries in general, but for your fellow directors too.

Your options include:

Trust in the process – One of the most regular oversights by company directors is not writing a business trust into their will. To qualify for 100% business property relief, shares of a business intended to be a going concern after a director’s death must pass via the ‘legacy’ clause in the will to a specific beneficiary, as per S39A Inheritance Tax Act 1984. That specific beneficiary should be a trust.

Gift that keeps giving – Consider gifting strategies to share wealth while reducing tax burdens. If you are starting out as a property developer/investor, this would be complemented with a smart company structure involving different share classes where necessary.

Don’t get cross, get cross-option – How will the deceased shareholder’s family and the company’s other shareholders be fairly compensated for their relative stake in the business? This is a complex area, but has a relatively simple, satisfactory and water-tight solution – a cross-option agreement – if you get the right advice.

For sure, business succession planning is a minefield. The main thing to take away is that it’s never too early to plan. Whatever the stage of your business, it’s crucial to take a step back and consider the requirements of the company going forward, should the worst happen.

No matter your situation, successful legacy planning – from intergenerational wealth management to successful business succession planning – requires a blend of disciplines. There’s much to gain from talking to a trusted adviser who can join all the dots, managing diverse elements of your wealth and resources to sustainably maximise your wealth.

You can read more on estate planning and how to leave a legacy, rather than a headache, in this article. And to book a free e-consultation with our expert team, so that we can discuss your specific requirements, contact us.

Not So Fast: Why ‘Get Rich Quick’ Rarely Works in Wealth Management Planning

‘Get rich quick’ as a description of the promise of fast financial gains dates back more than 130 years according to the Oxford English Dictionary. Slightly more recent is the century-old Ponzi scheme, peddled for its supposed high rate of return based on a so-called low-risk investment.

Similar schemes have been doing the rounds for generations. It’s easy to see why impatient investors might buy into the idea of sowing financial seeds that could rapidly reap big rewards.

Our younger clients in particular often take a short-term view. This is understandable in the context of retirement seeming so far away; a general lack of financial education; a boom in cryptocurrency attracting this audience by delivering substantial, albeit volatile, returns; and the need to access capital quickly when it’s harder than ever to get on the property ladder.

But if something looks too good to be true that’s probably because it isn’t. Getting advice from a wealth management expert who will align a long-term financial plan to your personal goals is vital. And experts will almost always tell you that slow and steady wins the race.

If advice is inaccessible, then building financial literacy skills – a key mission for ADL Estate Planning – will help the younger generation manage their finances more effectively.

Take some time to spread your risk

In most of our conversations with clients it’s clear they’ve grasped the volatility and potentially big losses associated with a short-term wealth management strategy. The greater the potential reward, the higher the risk associated with the investment. An expectation of rapid gain should always be balanced with acceptance of possible quick decline.

On the flip side, there’s a widespread understanding that when wealth is nurtured carefully and steadily over a longer period of time, the returns are worth waiting for.

We always start by seeking to understand the client’s unique goals. If that includes a desire to get rich quick we’ll educate them on what good investing looks like. It may seem more boring! But it will protect them against the unpredictable rollercoaster ride of short-term investments.

First and foremost, our advice to clients is to make a plan that will probably run for several decades; throughout their career, during their retirement, and for future generations, covering many life events. It might mean making a mental leap to identify their future needs but taking a focus on the end goals, then working backwards, to ensure their finances will perform well over time. This also helps us predict the level of potential gains and map out when the funds will become available to use.

Investment choices and cashflow models

The other key ingredient of taking the long-term view is sensible investment – and that involves closely considering how to spread risk. Whereas a get rich quick scheme might focus fully on a single investment opportunity, which could go badly wrong and lead to heavy losses, long-term wealth management is underpinned by diversification.

By that, we mean a financial plan that allocates the individual’s funds into a global portfolio, spanning a range of sectors, geographies and asset classes. Unlike investing in a single stock or instrument, if one element of the diversified portfolio came under pressure losses would be minimised – rather than the entire investment being wiped out in one go.

There are plenty of tax wrappers allowing someone to hold a variety of investment funds on the market, which provide an opportunity to gain a steady stream of income over time:

  • ISAs
  • Pension (55-plus)
  • Investment bonds
  • General investment accounts

Cashflow planning with a wealth management expert can identify the best way to invest in some or all of these types of tax wrappers. The underlying investment can be predominantly equities; or fixed income; or a mix of both. It largely depends on the individual’s attitude to risk and when they intend to withdraw funds.

Staying focused on your future finances

Most importantly, we pay close attention to the potential size of the person’s pot when they die. While that might sound morbid it’s fundamental to successful financial planning.

In building cashflow models we assume someone will die aged 100 (currently 12 years higher than average life expectancy). We also factor in 5%pa growth on investments, 2%pa interest rates and 2.5%pa inflation for the purposes of modelling. This helps to identify whether the person would run out of money and exhaust all liquid assets before hitting 100, or die with assets remaining.

Ideally, when someone dies they’ll leave a legacy. Of course, this brings inheritance tax considerations into the equation; but the client’s needs are the first priority and tax planning can follow.

Just as a keen gardener would plant seeds and wait patiently for them to flourish, the investor can stand back and see their long-term wealth management plan begin to reap rewards.

We stay in regular contact with clients and suggest holding annual or regular reviews to ensure the strategy remains sustainable in the long term. This is vital, as personal needs and goals always change over time – so the plan should have some flexibility too.

The review includes a brief overview of current market trends and the investment’s performance. But the fact is, we have no control over short-term market forces. That’s why fixing your eyes on the horizon remains the best way to create a secure financial future.

To discuss your wealth management needs and long-term financial planning book a free e-consultation today.

Inheritance Tax and what you can do to reduce your liability

Inheritance tax (IHT) remains a topic that evokes confusion and concern for many individuals planning their estate. The complexities of the UK’s tax system make obtaining inheritance tax advice a crucial task. This blog describes 3 key strategies to effectively reduce any inheritance tax liability, namely:

  • Strategic Gifting
  • Contributing to a Pension and,
  • Optimising for Business Relief (BR) previously known as Business Property Relief (BPR)

To start off, let’s define Inheritance tax. Inheritance tax is a tax on the estate (the property, investments, and possessions) of someone who has passed away. An estate is not taxed on the first £325,000 known as the nil-rate band (NRB), this increases to £650,000 for a married couple or a couple in a civil partnership.

Furthermore, when passing on a home to direct descendants an estate can claim an additional exempt threshold known as the Residential Nil Rate Band (RNRB) which is a further allowance of £175,000 or £350,000 for a married couple. This means an individual can pass down £500,000 free of inheritance tax on their death, or if married, there’d be no inheritance tax to pay on first death if the beneficial interest passed to the surviving spouse, who could then use a total exempt threshold of £1,000,000, which will not be liable inheritance tax.

Anything above these allowances is taxed at a flat rate of 40%. This means most people in the UK will not face an inheritance tax liability. However, for those that do, there may be several options available to reduce this liability, but expert inheritance tax advice is needed. There are lots of moving parts.

Strategic Gifting

Lifetime gifting is a powerful strategy in IHT planning. By gifting assets during your lifetime, you can significantly reduce the value of your estate over time. There are several exemptions and allowances for gifts, including the:

  • Annual exemption – £3,000 per year
  • Small gifts exemption – £250 per person
  • Gifts in consideration of marriage or civil partnership – £5,000 for a child

These exemptions are too small to make a reasonable dent in a sizeable estate. This is where potential exempt transfers (PETs) and chargeable lifetime transfers (CLTs) come into play, both of which form critical components of inheritance tax advice. PETs refer to gifts made by an individual to another individual (not to a trust or a company) during their lifetime. A PET will only be exempt from inheritance tax if the donor lives for at least seven years after making the gift. There is no limit on how large a PET can be. CLTs refer to gifts made by an individual to a trust during their lifetime, which again, will only be exempt from inheritance tax if the donor survives at least seven years. There is no ‘limit’ per se on how large a CLT can be, however, it is common practice to limit CLTs to £325,000 every 7 years as anything above this would attract a lifetime inheritance tax charge of 20%. A further benefit of settling assets into a trust (CLT) vs. directly gifting to an individual (PET) is 3rd party protection. A gift to an individual will be at risk to divorce settlement claims, creditor claims and general financial mismanagement.

A gift to a trust, provided the trustees are managing the trust well, would provide far greater protection as a trust is a separate legal entity where the individual that the donor wants to benefit can be listed as a beneficiary of the trust, and the trust assets can be controlled by experts and only distributed in accordance with the trust deed and letters of wishes.

Pension Contributions

Pensions can be a potent tool in IHT planning, offering opportunities to pass on wealth outside of one’s estate, thus reducing an inheritance tax liability. A pensions’ primary use case is a vehicle to provide capital and income during retirement. However, if an individual can draw on other assets that are part of the estate first, such as cash, ISAs, and general investment accounts, then withdrawals from the pension can be deferred. In some cases, a pension can be left untouched as because it’s surplus to retirement income and capital needs and in such circumstances the pension becomes a great vehicle for passing on a tax-efficient legacy to chosen beneficiaries. Contributions to a pension attracts upfront tax relief and removes the cash invested from the estate immediately, making them an essential consideration in estate and financial planning.

Business Relief

Business Relief (BR) offers up to 100% relief from inheritance tax on business assets. Qualifying for BPR involves meeting specific criteria, such as holding the assets for at least two years, and ensuring the business is carrying out a trading activity. An investment activity is not considered a trading activity, therefore businesses primarily dealing in property letting and trading securities will not qualify for BPR.

If you own a trading business, it’s likely the shares you own will qualify for BR and the value of the shares will be exempt from inheritance tax. However, if there is any surplus cash on the balance sheet there is a risk this will be treated as an excepted asset. That is an asset that, despite being owned by the business, is not considered necessary for the future success of the business’s trading activities. This can impact the amount of BPR that can be claimed.

People approaching retirement typically look to sell their business. This is great from a cash flow point of view, as one can expect a generous windfall to fund their retirement needs. However, one loses the BR status of the shares sold with cash now sitting in their personal name which is liable to inheritance tax. To mitigate this one can explore deploying the proceeds into investments that qualify for BR such as:

  • Enterprise Investment Schemes (EIS)
    • Investments into UK start-ups and early-stage firms that attract very generous tax reliefs (including BR). This tends to be an investment into an unlisted company that in turn invests into crucial infrastructure projects. Provided you’re dealing with a mainstream provided these tend to have lower volatility than investing into an AIM IHT portfolio.
  • AIM IHT portfolios
    • Investments into AIM listed shares that qualify for BR.

Navigating the complexities of inheritance tax can seem overwhelming, but with the right inheritance tax advice and IHT planning, it’s possible to significantly reduce the tax burden on your estate. Effective estate planning allows you to pass on more of your wealth to your loved ones, highlighting the importance of seeking professional inheritance tax advice to guide you through the process. Whether it’s making strategic gifts, contributing to a pension scheme, or optimising for business property relief, each strategy offers a pathway to minimising inheritance tax and ensuring more of your estate passes to your children rather than the taxman.35t

Corporation Tax: the case for change

The tax contribution made by UK businesses gets a regular airing, given we effectively now have two annual Budgets if you include the Autumn Statement. Yet despite the Treasury frequently tinkering with Corporation Tax rates there seems little appetite to make sweeping changes. And that’s a shame, because a rethink isn’t just needed – it seems crucial to solving many of society’s problems.

Corporation Tax levels have actually bounced around more than you might think. First introduced in the 1965 Finance Act the tax rate was a hefty 40%. Today, it’s roughly half of that with the latest update to the policy being the application of a sliding scale between 19% and 25%, depending on a company’s annual profit levels.

Discuss any aspect of taxation and the conversation usually centres on fairness. Of late, crucial elements of equity such as personal allowance and fiscal drag have hit the headlines as many households try to cope with the cost-of-living crisis.

Income Tax and National Insurance are usually the most scrutinised taxes as they directly affect millions of individuals. But at a time when the role of business in relation to complex societal issues is in the spotlight – from involvement in public service delivery to environmental impact – we should question whether current Corporation Tax is fit for purpose.

That means posing some fundamental questions, including:

  • What is the the purpose of a business in terms of the national interest?
  • What social benefit does a company provide?
  • Should firms be rewarded for positive impact, and likewise penalised for negative social outcomes?

Corporation Tax and the social contract

Corporation Tax isn’t alone in being a problematic part of our taxation system. But its limitations are symbolic of the changing nature of the social contract that exists between government, business and citizens.

That social contract currently exists to provide the foundations of a fair and fully functioning society: security and justice; healthcare; education; welfare; defence; and infrastructure among them. Boiled down, provision of those key pillars represents the ‘value for money’ we receive from public services as taxpayers.

But we should also expect the same contract with companies. In return for being well run and profitable, corporations should treat and reward employees well – and ensure their community values their presence.

Yet as with any tax, if it’s deemed unfair or contains loopholes some of those subject to the rules will – where legitimately possible – try to not pay. So, when we hear the refrain “Why don’t we just charge big business a lot more tax?”, that won’t work either.

In which case, what will? How do we reach a level of business taxation that makes sense, is fair and ultimately ensures all companies can have a real, positive impact on society?

Giving firms credit where credit is due

 One answer lies in setting out a new ‘social impact’ metric as the basis for future business taxation. Since companies have a variety of impacts – positive and negative – on local communities, the measurement system should consider:

  • Business model
  • Company culture
  • Community contribution
  • Local infrastructure needs

Local authorities could be mandated to identify key areas where their communities need additional support. For example, this could be housing, homelessness, sanitation, youth and adult services, crime, and so on – issues I bet you’re aware of in your local area, wherever you live.

A business could be scored against each of the criteria. Critically, their impact might be benchmarked against the local authority’s identified services that need support.

Many firms are already on board with the idea of formalising their impact on society, thanks to changes to governance rules and the emergence of B Corp and similar accreditation. Making your mark in this way can be a differentiator that offers competitive advantage. Implementing the measurement system outlined above would further codify corporations’ impact into something more tangible – and could be directly applied to taxation.

Better-performing businesses, which thanks to the new metrics would be able to demonstrate a positive impact on society, should receive Corporation Tax credits. In turn, that means they’ll retain more of their cash to continue invest in the services, products and actions which are providing the best outcomes.

Followed to its logical conclusion, such investment would take some pressure off purely public-funded services: health, social care, the police, and others.

Reward for better corporate contributions

There are other changes we can make. In my opinion, company directors and controlling shareholders should be made far more accountable for the societal consequences of their firm’s actions than is currently the case.

We shouldn’t stifle entrepreneurship, of course, or stunt the ability to make a profit. But if business leaders are personally invested to take actions that deliver net benefits to society, the tax system is more likely to bear fruit. Directors could be further incentivised with additional personal tax credits.

Put simply, the current tax system does not distinguish between a £100k-profit business that ends up causing £150k ‘damage’ through pollution, increased local reliance on health services, and so on; and another firm that turns a profit of £75k but isn’t responsible for any negative outcomes.

Corporation Tax might not be reformed any time soon – especially with political parties unlikely to want to rock the boat with the powerful business lobby in an election year. But change is something we should all more closely consider in a bid to build a sensible, equitable taxation system. That would offer an alternative to Friedman’s Shareholder Theory in the form of a social equivalent: meaningful contributions for a fairer society.

To find out how ADL can help your business with Corporation Tax planning, tax efficiency in general, as well as business succession, book your free e-consultation with us now.

Why Inheritance Tax Planning is Crucial for Your Financial Future in the UK

Inheritance tax planning is not merely a consideration but a necessity for anyone looking to manage their estate effectively. The concept of inheritance tax (IHT) centres around the tax your estate owes upon your death, if the value exceeds certain thresholds set by the government. Understanding the basics of inheritance tax and its implications is crucial, as it directly impacts the legacy you leave behind for your loved ones.

The mechanics of inheritance tax involve several key elements, including thresholds, rates, and available reliefs. Currently, the IHT threshold, also known as the nil-rate band, stands at £325,000 for individuals. This means that estates valued below this figure are exempt from inheritance tax. For estates exceeding this value, the standard IHT rate applied is 40%. However, strategic inheritance tax planning can significantly reduce this liability, leveraging various reliefs such as the spousal exemption and business property relief (BPR). As well as strategic gifting to individuals or trusts during lifetime.

Inheritance tax can affect various types of assets within an estate, from real estate and investments to personal chattels. Real estate, often the most valuable asset individuals own, can significantly increase the overall value of an estate, potentially leading to a sizable inheritance tax bill. Similarly, investments and businesses that do not qualify for BPR (such as companies that own residential property) are also assessable for IHT purposes. Understanding the impact of inheritance tax on these assets is pivotal in inheritance tax & estate planning advice, ensuring beneficiaries receive the maximum possible from their inheritance.

Effective inheritance tax planning involves maximizing your available allowances to minimise the IHT liability. The nil-rate band offers an opportunity to pass on assets up to £325,000 tax-free. For married couples and civil partners, this allowance can be transferred, effectively doubling the nil-rate band to £650,000. Moreover, the residence nil-rate band (RNRB) provides an additional allowance of £175,000 for individuals, and £350,000 for married couples, when passing on a family home to direct descendants. However, the RNRB is tapered down by £1 for every £2 the estate value exceeds £2,000,000, underlining the importance of thorough planning and understanding of these allowances in inheritance tax planning.

For property owners, inheritance tax planning encompasses several innovative strategies to mitigate tax liabilities. A Holdover Gift Trust can offer a structured way to manage and pass on equity in property efficiently, potentially reducing the inheritance tax burden and deferring any capital gains tax liability. Rental income is given up using this strategy though, so section 102 (b)(iii) planning may be a more suitable option if rental income is still required. If an individual, or couple, own a significant amount in property, then structuring the property in a clever alphabet share class company would offer the ideal solution to optimise against inheritance tax. There are several options available to property owners, however, it is critical to seek inheritance tax & estate planning advice as there are different tax implications for each solution that needs to be considered carefully.

At the heart of inheritance tax planning is the creation of a Will, a fundamental document that dictates the distribution of your estate according to your wishes. Without a Will, your estate is subject to the rules of intestacy, which may not align with your intentions. Additionally, Immediate Post-Death Interest (IPDI) trusts represent a sophisticated planning tool, allowing for greater control over how and when assets are distributed, providing a tax-efficient way to manage inheritance.

In conclusion, inheritance tax planning is an indispensable element of financial and estate management. It ensures your assets are passed on to your beneficiaries in the most tax-efficient manner possible. By understanding the nuances of inheritance tax, from thresholds and rates to the impact on different assets, individuals can craft a strategy that aligns with their goals. Maximising allowances, utilising reliefs, strategic gifting, and ensuring the proper legal foundations are in place via a Will and IPDI trusts are all critical steps in safeguarding your estate for future generations. With the right inheritance tax & estate planning advice, you can secure your financial legacy and provide for your loved ones long after you’re gone.

The Millennial’s Guide to Wills and Wealth Planning: Building Your Legacy

In today’s rapidly evolving financial landscape, millennials are at a critical juncture where wills and wealth planning are not just advisable but essential. The complexity of modern wealth, including digital assets and cryptocurrency, alongside traditional investments, underscores the need for comprehensive estate planning. This blog explores the vital components of estate planning tailored for young adults, emphasizing the importance of early engagement in wills and wealth planning to secure a prosperous future.

Estate planning often evokes thoughts of old age or vast wealth. However, at its core, it’s about ensuring your assets and wishes are respected, regardless of your size of your wealth or the nature of it.

In the UK, the law permits individuals the freedom of testation, allocating their estate to anyone via a correctly executed will. This fact highlights that wills and wealth planning are crucial for everyone, including millennials who might consider that they are still in the wealth building phase.

Estate planning goes beyond mere asset distribution; but includes appointing key individuals or professionals to important roles be they executors, guardians for minors, or attorneys. It offers a structured approach to managing one’s financial and familial responsibilities during times of great distress.

The notion that estate planning is reserved for later stages of life is a misconception. The reality is that the sooner one starts, the better equipped they are to navigate life’s uncertainties. Early engagement in wills and wealth planning ensures your wishes are documented and can significantly ease the administrative and emotional burden on your loved ones during challenging times.

The digital revolution has introduced a new class of assets, from online accounts to cryptocurrencies, necessitating their inclusion in wills and estate planning. Protecting your digital estate is as crucial as safeguarding physical assets. Failure to include these in your estate plan could result in valuable digital assets being lost or unclaimed. The integration of digital assets into your will ensures that all facets of your estate are comprehensively managed, reflecting the totality of your wealth in the digital age.

Investing is a cornerstone of wealth planning. For millennials, creating a diversified portfolio that balances risk with return within appropriate tax wrappers and structures is essential for achieving long-term financial security.

The key is to start investing early, allowing more time for your investments to grow and compound. This proactive approach to investment is an integral part of wills and wealth planning, ensuring that your assets are not only protected but also have the potential to grow.

Ethical investments stand out as a powerful tool for millennials aiming to align their portfolio with their values. Unlike traditional investment strategies that primarily focus on financial returns, ethical investing emphasizes the impact of investments on society and the environment. Incorporating ethical investments into wills and wealth planning not only allows individuals to contribute positively to the world but also ensures that their financial legacy is in harmony with their ethical beliefs. It represents a thoughtful approach to wealth planning, where the choice of investments reflects personal values without compromising on the potential for growth and stability.

Retirement planning is another critical aspect of wealth planning that millennials should not overlook. Starting early in this area allows for a more aggressive investment strategy, maximizing potential returns over a longer period. This foresight is beneficial, as the power of compound growth plays a significant role in accumulating wealth for retirement. Early retirement planning, coupled with strategic wills and wealth planning, provides a solid foundation for future financial stability.

Understanding the implications of inheritance tax is crucial in wills and wealth planning. In the UK, the standard inheritance tax rate is 40% on estates valued over £325,000. However, strategies such as gifting, trusts, and charitable donations can mitigate this tax burden. Efficient planning can significantly reduce the amount of tax payable, ensuring more of your estate is passed on to your beneficiaries. This aspect of wealth planning underscores the importance of early and informed estate planning to optimize tax efficiency.

The landscape of wills and wealth planning is broad and encompasses more than just the distribution of assets upon death. It’s about making informed decisions that align with your personal and financial goals, protecting not only your assets but also your digital legacy, and ensuring your wishes are executed as intended. For millennials, engaging in wills and wealth planning is a step towards securing a legacy that reflects their values and desires. By addressing these elements early on, millennials can build a comprehensive estate plan that not only safeguards their wealth but also lays the groundwork for a prosperous future.

Essential wealth planning for new law firm partners

Essential wealth planning for new law firm partners

In a recent post we considered what graduates who are beginning a budding career in law need to know about managing their finances. Now it’s time to focus on the higher rungs of the law firm ladder with our wealth management planning advice for new and prospective partners.

You may have dreamt for many years of being a law firm partner, but now you’ve made the grade what’s in store for you financially? In many cases it’s the promise of immediately bigger income. As with the top rung of many professions your future earning potential will also be greater.

But that isn’t the whole story. Your changing circumstances as a ‘partner in waiting’ – where you’ve had the nod but still have targets to achieve – or a newly appointed partner will also give rise to new financial requirements.

ADL helps many legal professionals just like you, who are making the step up to partner, with wealth management planning. In this article, we consider what partners need to know about financial management, and why you should start planning as soon as possible.

What your new pay package will look like

First, let’s look at how law firm partners can expect to be compensated for their dedication and expertise.

While not all partner roles are the same, there are three general classifications of partner remuneration:

Equity partner – Where the partner’s income depends on the law firm’s profits. Profit share agreements can either be based on individual partners’ levels of seniority at their firm; or a mixture of that plus an additional annual performance-based share. As covered later, equity partners are required to invest capital in the business; again, the details of this will vary by firm e.g. cash contribution or loan.

Fixed share partner – This arrangement is a reduced form of equity partner (see above), with the partner’s income usually determined on a profit share basis, but at a lower percentage than full equity partners. Fixed share partners are often contracted to guaranteed minimum payments even in a year of poor profit. Bonuses/commission can also be part of their remuneration.

Salaried or Income partner – Unlike the two partner types above salaried/income partners remain on PAYE. They receive a contractual amount that doesn’t take into account the firm’s profits, which are not part of their income. That said, bonuses and commissions may still be paid.

There’s a lot to get to grips with. At a time when you might also be taking on bigger or more complex cases that would positively impact your and the firm’s reputation, it’s also important to consider how your financial compensation package could affect any wealth management planning.

Understanding financial risk and reward as a partner

Broadly speaking the issues below are the main financial considerations at this point of your legal career. Here’s a closer look at the issues you might encounter and our initial advice on how to approach them:

From safety net to self-employment – If you’re becoming an equity or fixed share partner the law firm will require you to switch to self-employment for tax purposes. If this is the first time you’ve moved away from PAYE you’ll need to get used to setting money aside to pay tax every January and July.

When you come off payroll you’ll also lose access to the firm’s employee benefits package. Removal of death in service and critical illness benefits is especially important, particularly for new partners who have a mortgage and/or a family to maintain.

Solution: Not all law firms automatically stop employee benefits: we work with some that are still entitled to a lump sum payout should the partner die, for example. But more often than not you’ll need to think seriously about replacing insurance policies to make sure you are appropriately covered in case the worst happens. The key word here is “appropriately”; this means more than having an equivalent sum being paid out by the insurer, but rather also being set up under trust, and then paid out of the trust correctly – especially where it’s covering a mortgage.

We helped a newly appointed partner who lost access to payroll benefits, recommending income protection to cover essential outgoings and a decreasing term assurance policy for their mortgage.

Off the payroll, out of the pension scheme – Closely linked to the point above is another common problem to solve: leaving your firm’s pension scheme if you’re a self-employed partner. That means you’ll need to start funding your future retirement yourself – and without the right advice pensions can be a minefield.

Solution: We recommend transferring the pension you’ve accrued at the law firm into a private scheme. From there, you’ll need to restart the regular contributions you were already making and review the level when your income begins to rise, for example through a greater share of profit-related bonuses. This is something we handled for a newly promoted partner; it’s important to review your contributions after 6 or 12 months, when you’d normally receive your first bonus.

It’s all about maximising pension allowances. However, partners are likely to use carry forward quickly. At this point you’ll want to make the most of ISAs and – once those are maxed out – alternative options such as Venture Capital Trusts.

As explained in our recent blog High Earner, High Pressure?, which considers investment options for people on bigger incomes, VCTs are tax-efficient collective investment schemes. They are 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.

 An increase in personal financial risk – Depending on the structure of your law firm you may be exposed to a much higher level of financial risk which can even include assets such as your family home.

In a limited company or limited liability partnership exposure levels are lower. Partners are required to invest up front – typically through capital or current accounts, directors’ loan accounts or existing profits. Typically, risk matches the level of initial investment made.

But risk is higher at firms with a traditional partnership that becomes insolvent if, for instance, the partnership performs badly or suffers a negligence claim that exceeds professional indemnity cover. In some cases, the creditor might even choose to pursue a specific partner further putting their personal assets at risk.

Solution: It’s a counterpoint to your success as a legal professional that financial risk increases even as you begin to earn more money as a partner. You might also need to take out a loan to buy into the partnership. This is often the case at smaller law firms where finance is required to ensure cashflow is not disrupted. Financing in this way can be structured as a capital account, paid down over time when you generate fees as a partner.

Partners in time: get wealth planning advice early

Whatever the issues presented as you step up to be a law firm partner getting the right advice and wealth management planning in advance are key. If you engage an adviser prior to becoming a partner you’ll be in a better position to navigate the financial opportunities and risks that will inevitably come your way.

According to Glassdoor the average partner starting salary in a UK firm tops £88,000 and this annual figure can rise dramatically over time. Add almost £20,000 in bonuses – sometimes far more – on top of this and you can clearly see why financial management advice is a must.

ADL is home to extensive expertise and experience under one roof, relating to all of the aspects outlined above and more including:

  • Insurance: critical illness, income protection and more
  • Pensions planning and ongoing management
  • Employee benefits
  • Intergenerational wealth transfer

Our mission is to provide bespoke wealth management planning that suits your specific circumstances, and support you to make sure the devil in the financial detail doesn’t undermine your progress as a law firm partner.

For more information or to book a free introductory consultation, contact our team today.

Navigating Inheritance Tax: Expert Advice On Estate Planning London

A significant aspect to considering inheritance tax advice in the UK for most affected people is always going to be dependent on property values. Considering London’s population and average property values being the highest in the UK, it presents a unique challenge for effective estate planning in London. This is because the value of a London home can use up one’s inheritance tax exemption entirely. This could present an unintended consequence where asset rich, cash poor families would need to sell a home to pay the inheritance tax bill or pay high rates of interest to fund it.

Estate planning in London intertwines the challenge of a greater exposure to inheritance tax with asset illiquidity. Without inheritance tax advice families risk their ability to retain an income generating asset that can improve the financial well-being of beneficiaries. Therefore, inheritance tax needs to assume a pivotal role in the financial narrative of parents and children alike.

Overview of Inheritance Tax

Inheritance Tax is a 40% levy on a deceased person’s estate applied when assets pass down to lineal descendants. The estate compromises of everything you own; property, investments, cash, personal belongings but it excludes money purchase pensions and assets that qualify for business relief.

Every person has an allowance on which they can pass down assets without paying Inheritance Tax. This is called the standard Nil Rate Band (NRB) and it is £325,000. A married couple can utilise the inter-spousal exemption meaning the NRB passes to the surviving spouse on 1st death and the combined NRB value of £650,000 can be used before any tax is paid when the surviving spouse passes away.

An additional Inheritance Tax allowance called the Main Residence Nil Rate Band (RNRB) can be used when a primary residence is passed on to direct descendants, such as children or grandchildren. The RNRB is £175,000 and the inter-spousal exemption can be used meaning a total of £1,000,000 of allowances is available to married couples. One needs to be mindful, however, that the RNRB tapers away for estates valued over £2M.

Estate planning in London is complicated by lofty property valuations combined with the likelihood that mortgages will be (and should be) paid off in old age and by the time Inheritance Tax is due on death. Should mortgages not be paid off or there not be an appropriately structured insurance policy in place, the lender will eventually demand the repayment of their loan, which could require the sale of the property, which may trigger Capital Gains Tax at rates as high as 28%. Should you die a few years later, those unspent sale proceeds could then be subject to inheritance tax at 40%.


There are several ways to reduce or manage your exposure to inheritance tax, and it goes without saying the best time to start estate planning in London is yesterday but seriously you should be obtaining tax planning and financial planning advice from the moment you realise you are building wealth. This is because the decisions you make whilst you are building wealth could ensure that you are structuring your wealth in the most tax-effective way from day 1 which could avoid expensive planning solutions later in life that could amount to tens of thousands in advice and implementation fees.

Here’s 6 effective estate planning in London strategies to consider

  • Put in place specialist wills and multiple trusts with expert trustees
  • Put in place correctly structured life policies; this is more than assigning your life policy into trust.
  • Set up a clever alphabet share company structure from day 1 of your property investment portfolio.
  • Gift strategically during lifetime.
  • Don’t just think of a pension as a retirement planning vehicle but also as a succession planning vehicle.
  • Diversify your investment holdings and your tax wrappers.

In conclusion, navigating inheritance tax in the UK is a labyrinth, with estate planning in London presenting additional challenges due to higher property values. Therefore, meticulous planning to ensure optimal wealth preservation for the next generation is crucial.

Degree Of Success: What We Learned from Helping Law Graduates with Financial Literacy

In a recent blog we reflected on the fact that the UK struggles with financial literacy – across all generations, and in all sections of society.

In fact, studies show that almost three-quarters of British people find it hard to get their minds around money matters. In turn, that leaves individuals’ wealth at risk of being badly invested or simply frittered away if people can’t or won’t seek the right financial advice.

It seems like the public is coming round to the need for better financial literacy. According to a recent report about the current school curriculum by the Laidlaw Foundation – flagged up in The Times – 94% of parents believe educators have a key role to play in helping children learn life skills, not least managing their finances.

In addition, 40% of parents named financial literacy as the most important life skill – and almost twice as many said such skills are more important to their child’s future compared to preparing them for further academic study (i.e. further and higher education).

There’s lots of work to do to chip away at the causes of poor financial literacy in the UK – and it’s our mission to do just that. Nor does the job stop when school’s out; adults still need support managing their finances.

To that end, Prajesh Patel – ADL Wealth Director, Private Clients – was invited to run a series of online seminars with an audience of university graduates working at law firm Fieldfisher. The sessions covered a wide range of topics, from creating an ‘emergency fund’ and budgeting, to setting goals, investing and thinking differently about credit.

We asked Prajesh to discuss his experience of helping these young people to improve their financial literacy and wealth management – and discovered he also learned a lot from the three sessions.

Which areas of finance that you covered seemed to be of most interest to the graduates?

I received the most questions around credit cards and credit scores. Credit and debt management is an area I might have learned about earlier. That was the overall theme of the seminars: what I wish I’d known when I left university.

Information around this is relatively scarce, and in some cases, confusing to understand. Credit also comes with a stigma attached. It’s seen in some quarters as simply building up debt, and therefore problems for the future.

But I think it’s one of the critical areas of financial literacy and wealth management. When the graduates come to apply for a mortgage, or in some cases a loan, they will need a credit rating. There’s no difference between using your current account or having a 0% interest credit card to pay daily outgoings – like shopping or bills – and getting used to paying it off automatically each month.

As long as you budget properly, and it doesn’t spiral out of control, you’ll also get a good credit rating, which will help in the future.

Were there any other surprises in the audience’s response to the topics you discussed?

There were only a few questions about investing. That surprised me. Perhaps the audience has a good understanding of it already. There’s a lot of information available in this area so self-teaching is easier than, say, for credit and debt.

But it’s still important to remember that some of the information is bad advice. Look at the number of property investment courses that have sprung up in recent years. Some of those, when scrutinised properly, are not going to make people as wealthy as fast as they claim.

Then there’s the interest in cryptocurrency investment returns among younger age groups in particular. That’s still a relatively unregulated market and you should definitely do due diligence and seek advice before committing money to it.

Was this the first time most or all of the graduates had interacted with a financial adviser?

Yes, that was one of my key insights from the seminars. It seems I was the first person attempting to give them the tools they need to navigate a complex financial world.

I think there are three reasons for this. One, regulated advice is rarely available on social media where this audience goes for a lot of its information. Two, their parents may also not have accessed financial advice, so the knowledge they can pass on is limited.

And three, it’s easy to think when you just have a couple of hundred pounds of spare cash per month that a wealth manager wouldn’t be interested in talking to you. But we’re always happy to help! Especially if it means you don’t fall into the pitfalls of bad investment choices, which I covered earlier.

You mention finding financial content on social media. Do you think technology can help improve financial literacy for the graduates’ generation and those that follow?

Some people will always be better than others at using tech and finding reliable sources, no matter their age. But I do think young people today have a better chance to get the knowledge they need, because they are more proficient with technology, and have instant access to so much information.

There are lots of financial advice apps out there – ADL’s My Finances for one – and they’re usually pretty good. Hopefully technology will have an impact on financial literacy in the future, too.

Did you leave the graduates with some sage advice about what they can do to improve their financial situation from now on?

I think it’s a case of building their knowledge of financial matters gradually. Pick an area, read up on it and seek advice where necessary. Based on their feedback about the seminars, which was overwhelmingly positive, there’s clearly a demand for better financial  education so that’s a drum ADL will continue to beat.

Here’s a summary of what graduates can do – though most of these are also applicable to all of us:

  • Structure your financial goals: find out more here
  • Use (and regularly pay off) a credit card to build your credit score
  • Budget well by using an app to help you
  • Build an emergency fund before you invest
  • When you decide to invest – diversify
  • Make sure you use tax wrappers e.g. ISA/pensions
  • Pay off your student loan as early as possible

To find out more contact ADL using the form below. You can also keep track of Prajesh’s advice on learning how to manage your finances on social media:



What is the ADL Advice Guarantee?

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We guarantee our advice and implementation fees will be the most competitive in the market based on the following criteria:


  • The expertise of your lead adviser i.e. holding at least STEP membership and regulated financial planning qualifications or a private client solicitor holding at least 5+ years post qualification experience in private client advice. The solicitor may not hold formal regulated financial planning qualifications but will be conversant on relevant complementary financial planning needs and thus involve a suitably qualified and experienced colleague.


  • The procedure of the advice given which includes, a free initial consultation process; the initial call/zoom session that often lasts an hour, post-session research, a strategy email or report (where needed). All without a charge.


  • Post implementation support and guidance without charge. We will not charge you a fee to re-open your case file and review the planning implemented several years prior. We will not charge you a fee to explain the planning we’ve put in place to your children several years down the line when they are now old enough to be able to comprehend it.


  • The actual implementation of the solutions.


  • If you’ve been given a “cheaper” quote. We’ll review any solution you’ve been given, providing you with a commentary free of charge. If the actual implementation cost is cheaper, we’ll consider matching it if you really prefer to work with us. At the very least, you can rest assured whatever planning you have decided to implement has been one that you’ve decided to implement with eyes wide open.


  • Finally, the ADL Advice Guarantee mandates ADL Estate Planning Ltd to be a corporate member of the Best Foundation, which offers it’s own attractive Client Guarantee, inclusive of independent arbitration. You can read more about this here: https://bestfoundation.org.uk/about/client-guarantee/


I’m confident our ADL Advice Guarantee is something that will reassure all our prospects and clients. This is also in addition to at least £2M in professional indemnity cover we have in place for all estate planning work we undertake. Do note, any regulated financial planning work is undertaken under our ADL Wealth brand and any tax reporting work is also covered by appropriate levels of professional indemnity cover.

We look forward to supporting and welcoming you and your family into our ecosystem so we can provide you with some of the most important areas of professional advice you’re ever likely to receive.

Should you have any questions about this advice guarantee, you can reach out to me directly.


Mohammad Uz-Zaman MA Adv DipFA PETR CeRER CeLTCI

Chartered Alibf (STEP Associate)

Private Clients

Managing Director

Email: muz@adlestateplanning.co.uk