5 important life events a financial planner can help you prepare for

In 1994, Brits first heard one of the most famous phrases about life. It came from the film Forrest Gump, in which leading actor Tom Hanks says: “My mom always said life was like a box of chocolates. You never know what you’re gonna get.”

Never was a truer word spoken. Life certainly has a way of taking you by surprise, with Covid being a case in point.

While some life events may be unexpected and unwanted, others are planned and provide huge amounts of joy. Whichever they are, life events can have significant implications for your finances, which is why it’s important to discuss them with your financial planner.

Read on to discover five life events, how they may impact on your wealth, and how a financial planner could help you make the right decision when they happen.

1. Getting married or forming a civil partnership

As a married or civil partner couple, you have several benefits you would not have had as two single people – even if you lived together. For example, as a couple living together you do not automatically inherit the other’s nil-rate band (NRB), which is the amount your allowed to have in your estate on death before Inheritance Tax is due.

Your NRB increases from £325,000 per person to £650,000 when you marry or become a civil partner. If you are eligible for the residence nil-rate band, your joint NRB could rise to £1 million.

Another benefit is that you can typically split your assets with your spouse. This means that when you come to sell the asset, you and your spouse can both use your £12,300 Capital Gains Tax allowance (in the 2021/22 tax year), effectively doubling it to £24,600 before the tax is due.

Speaking with your financial planner could be a very shrewd move, as they could ensure you’re taking all the tax benefits you’re entitled to.

2. Having children

Having children is always a joyous occasion and could alter your priorities. The following are two ways this might happen and how your financial planner could help.

Ensuring your family’s financial welfare

Having a family who relies on you financially might mean you need to consider life cover or income protection, as it could help ensure loved ones can maintain their lifestyle if anything happens to you. A financial planner could help ensure the cover is cost-effective and appropriate for your needs.

Saving for your child’s future

You may want to create a pot of money that could fund your child’s studies at university or help them buy their first home. A planner could help confirm the best way to do this, perhaps by using a tax-efficient Junior ISA, and how you might be able to expose the money to greater growth potential.

3. Going through a divorce

Divorce could significantly affect your short-term and long-term financial security. One way this could happen is if your ex-spouse does not share their pension with you.

While a pension pot could be one of the most valuable assets within a marriage, research by Legal & General shows that 24% of people waive their rights to their former spouse’s retirement fund. This could deprive them of much needed income in retirement.

A financial planner could help you understand your marital assets, including pensions, and provide options to ensure you have a secure long-term future.

4. Receiving an inheritance on the death of a loved one

Research by Hargreaves Lansdown found that half of those who expect to receive investments as an inheritance don’t know what to do with them. Worse still, of those questioned, 38% said they would cash the investments in and put the money into a savings account.

Considering inflation stands at 3.1% in September 2021, and savings accounts are paying historically low rates of interest, this could significantly reduce the long-term value of the inheritance in real terms.

A financial planner could help you understand the investments you’ve inherited, and ways you might be able to maintain their growth potential at a level of risk that’s appropriate for you.

Another way your planner could help is if an inheritance increases the value of your estate, making it liable to Inheritance Tax (IHT). If this happens your planner can provide options around using gifts and certain investments to help reduce or negate your liability to the tax, which is typically charged at 40%.

5. Deciding to retire

According to an article by Money Age, just 14% of retirees over 55 took regulated advice or guidance before switching on an income from their pension. This is despite the fact it could have resulted in them paying unnecessary taxes, and jeopardising their lifestyle in retirement.

Working with your planner as you approach retirement could help you make sure you can afford the retirement lifestyle you want, as tax-efficiently as possible.

It could also prevent you falling foul of little know tax-traps, such as the Money Purchase Annual Allowance. This could affect you if you work part-time while taking an income from your pension.

Get in touch

As you can see, life events could have significant financial and tax implications. Speaking to your planner when they happen could help make sure you deal with them as effectively as possible, while taking the pressure off you at a potentially difficult time.

If you are experiencing a life event, or want to plan for one, please contact your HarperLees planner who will be happy to discuss it with you. Alternatively email us on info@harperlees.co.uk or call 01277 350560 and we’d be happy to help.

Please note

This article is for information only. Please do not act based on anything you might read in this article.