What is wealth management?

Before we go into what tax management is, you first need to understand wealth management services.

Unlike financial advice services, the approach to wealth management is more holistic. It is a service that supports clients across multiple areas of their financial life rather than just one specific area.

Wealth managers typically work with high-net-worth individuals (HNWIs). However, their services are not only reserved for the wealthy. Those with complex financial needs can also benefit from wealth management services.

If you want to know more about the broader topic of wealth management services, read our guide for a detailed breakdown.

Strategies for effective wealth and tax management

There are several strategies to help you reduce your tax bill. Some examples of tax strategies include:

Tax-deferral strategies

One of the most effective ways to reduce tax liabilities is by putting your money into tax-deferred accounts. These include ISAs which allow you to grow your money tax-free and without the risk of Capital Gains taxes.

You could also consider pension products as part of your retirement planning strategy.

The UK government recently announced an increase to the annual tax-free pension allowance. You can now save £60,000 each year. Meanwhile, the lifetime limit was abolished, meaning there is no cap.

Tax-free investment options

You don’t pay Capital Gains Tax on certain investments in the UK. Assets such as company shares, mutual funds and exchange-traded funds (ETFs) held in an ISA do not incur Capital Gains Tax as they increase in value.

Investing in tax-exempt bonds. You don’t pay tax on government bonds (also known as gilts) and most company bonds. Municipal bonds, which are issued by local governments and non-profits, are often exempt from taxes.

Tax-loss harvesting

Tax-loss harvesting is the process of selling assets that have decreased in value to offset gains in other areas.

Capital Gains Tax (CGT) is only charged on net capital gains. So, by offsetting your losses against your gains, you can reduce the amount of CGT you owe.

Take advantage of allowances

You have a Capital Gains Tax (CGT) allowance for each tax year in the UK. This is an annual amount that is exempt from CGT.

You could reduce your tax bill if you time the sale of your investments correctly to coincide with your annual allowance.

Charitable contributions

Donating money to charity can also provide significant tax benefits. Charitable contributions can be structured through donor-advised funds and charitable trusts to provide ongoing tax benefits.

You can also get tax relief on money donated to amateur sports clubs. Visit the UK government’s website for more information on tax relief.

Estate planning

By structuring your estate plan correctly, you can protect assets you want to pass on to loved ones from tax. This can be done by utilising various estate planning strategies such as gifting.

Gifts do not count against your lifetime estate, meaning they are exempt from inheritance tax.

The gift tax exemption (or allowance) is currently £3,000 per year. You can give gifts or money up to this amount to one person or split it between several.

Another strategy to help minimise the tax burden on your heirs is to create a trust.

Trusts are not a one size fits all product. There are different types to suit different needs. Some examples include:

• Reversionary trusts
• Annuity trusts
• Irrevocable trust

Speak to a wealth management professional who can help you find the right trust to suit your needs.