How one of our advisers saved a client £14,000 in tax

Hugh Breach is a Chartered Financial Planner who specialises in pensions and retirement planning, investment management, long-term care planning, estate planning and inheritance tax planning, trusts, and protection. Read his profile.

My colleagues and I are regularly asked about how to make the most of tax allowances. It’s an area we specialise in.

Some only think about it when it comes to tax year end, but saving tax needn’t be a once a year job. We can delve into your finances at any time and look for ways to make them more tax efficient.

Everyone’s circumstances and needs are different, but here’s how I helped a client towards securing their financial future – and save money on tax too. I helped this client during the 19/20 tax year so all figures are correct as of that period. Tax rules change and any tax benefits depend on personal circumstances and advice would be adapted accordingly for new or returning clients.

My client’s background

My client got in touch for advice on investing some of the cash savings she’d built up. Her aim was to invest this money so it could help fund a retirement chock full of things to look forward to.

She planned to retire in around 5 to 10 years’ time – a good amount of time for her portfolio to make a difference. Like many clients, she found investing interesting, but wanted some one-off advice to be confident she was making the right decisions. She was happy to manage her investments after we parted ways, safe in the knowledge she could call on me again at a later date - without being locked in to paying for yearly reviews.

How I helped her save £14,000 in tax

An in-depth understanding of the rules can result in big tax savings. And these savings, coupled with having more money in your pension, could add up to a big difference when you come to retire.

My client was a higher–rate Scottish taxpayer, so the most obvious place for her to achieve both these things, was to use the tax relief available on pension contributions.

But the opportunities didn’t stop there.

Making up for missed contributions

In our quest to boost her pension, we took advantage of the ‘carry forward’ rule. This rule effectively allows a second bite at unused pension annual allowance from the previous three tax years.

So we took a dip into her pension history, where I uncovered a gem hiding in plain sight: £42,000 left in unused annual allowance. She was in a strong position and earned enough to allow her to contribute this amount in full to her pension. She did this by contributing more to her workplace pension.

My client managed to save an impressive £14,000 in income tax. As she did this via salary sacrifice, she also made a National Insurance saving, meaning her £42,000 pension contribution effectively cost her less than £28,000. All things considered, that’s a good day at the office.

Try our carry forward calculator

Setting things up for the future

I had one last parting gift. Because she had used her full ISA allowance, I helped her invest some leftover excess cash in an HL Fund and Share Account. I advised her she could hold them in an ISA in the future when she has available ISA allowance.

By working with my client, I was able to give her a clear view on the present and a strong plan for the future. By simplifying and explaining her finances, she’s confident managing things by herself, but is free to call on me again if she needs a helping hand.

This article is not personal advice. If unsure, please seek advice. Unlike the security offered by cash, all investments fall as well as rise in value so you could get back less than you put in. We can advise you on how to make use of your tax allowances through financial planning but if you need complex tax calculations, we recommend consulting an accountant. Once money is in a pension you cannot usually access it until age 55 (57 from 2028).