How financial advice can help you be more tax efficient

At a glance:  

• A clear financial plan created by a professional can help you hit your financial goals
• Ensuring you are making the most of tax allowances can give you a tax-efficient platform to grow your wealth
• A tax-efficient platform can harness the power of compounding and help you build towards the financial future you want

What is financial advice?

Our restricted financial advice service provides you with a tailored financial plan based on our analysis of your income, any savings, and your spending habits. This can help you to:

• Structure your finances to support you through significant moments in life
• Understand tax efficient ways of investing, such as using ISAs and pensions
• Utilise any tax allowances, exemptions and reliefs that may be available to you
• Grow your wealth by building a tax efficient strategy to make sure your savings are working hard enough for the future you want

Tax is a complex topic, and while we can discuss how to maximise using your UK tax allowances, if you need specialist tax advice we recommend speaking to an expert for a comprehensive view.

What we mean by 'restricted advice'

The plans and solutions we build for our clients are based on our own products and services, not those available outside of Nutmeg. Our financial advice service is available for a one-off fixed fee, and you can book a free, no obligation consultation with an expert.

Do I need financial advice?

There are a wide variety of circumstances where financial advice may be a valuable option. Common goals we tend to find our clients want to explore include:

• Thinking about how to invest for your children
• Considering how to make sure your pension lasts throughout retirement
• Leaving a legacy to loved ones
• Ensuring investments in different places are complementary (like multiple stocks and shares ISAs, or workplace pensions)
• Consolidating investments to lighten the administration load, but making sure you do so in a way that will give you a tax efficient platform

This list is by no means exhaustive. As FCA regulated, qualified advisers, our team can evaluate your circumstances and help you make sure your portfolio is set up as efficiently as possible.

Although tax is only one consideration in a financial plan, it is impactful. A little bit of advice about your tax allowances can go a long way. It can help you stay focused on the big picture and the goals that matter. What's more, when you receive advice from Nutmeg, you'll always be looked after by the same person – so they can get to know you, your wealth, and your goals – and tailor your strategy accordingly. 

“I am right alongside people during, or after, significant life events that can be overwhelming to navigate,” says Holly Graham, one of our financial planners. “Understanding their needs and goals, I can then act in their best interest to provide recommendations. And I love when I hear from my clients that they have achieved the goals that we planned together.”

We can help you make the most of your tax allowances

Maximising the use of tax allowances will insulate more of your investable capital from taxes you may have to pay if you make gains outside of a tax wrapper. If your investments are held in a tax wrapper such as an ISA or a pension, there are no taxes to erode any investment gains you may make. You can contribute up to £20,000 in ISAs per tax year, while most people can make pension contributions up to their relevant UK earnings or £60,000 per tax year, whichever is lower.

Using tax allowances like this to follow a tax-efficient investment strategy can help you reach your goals faster than if you were to only invest outside of tax wrappers. This is down to harnessing the power of compounding.

Therefore, the more you can tax wrap year after year, the better platform you are giving yourself to grow your wealth.

The impact tax can have on financial plans means being aware of changing government policy is essential to what we do. For example, there were policy adjustments announced in the Autumn Budget, with those most relevant for investors centring around inheritance tax (IHT) and capital gains tax (CGT).

Here’s a quick recap of what changed:

CGT

As a reminder, gains on investments that do not sit inside a tax wrapper – such as an ISA – will typically attract CGT.

The rates payable have changed, however the annual exempt amount of £3,000 remains static. For gains on chargeable assets exceeding this amount, the rates are as follows:

• Basic rate taxpayer: increase from 10% to 18%. The rate payable on residential property was already 18%, so this brings other assets in line.
• Higher and additional rate taxpayer: increase from 20% to 24%. The rate payable on residential property was already 24% and remains the same.

This change took effect for disposals made on or after 30 October 2024. There are still some assets you do not pay CGT on.

IHT

When a person dies, most of the assets they leave behind form their 'estate'. IHT is charged on the estate left, but only if it exceeds a certain threshold, and only if it does not pass to a spouse, civil partner or a charity. The IHT thresholds have been frozen for a further two years, to 2030.

These are some of the key facts and figures to keep in mind, assuming that no gifts have been made in the seven years prior to death:

• £325,000 nil-rate band

The first £325,000 of any estate can be inherited tax-free. This is called the nil-rate band.

• £175,000 residence nil-rate band

This is available to those passing on a qualifying residence to their direct descendants upon death. It would increase the total tax-free amount to £500,000.

• Inheriting from a spouse or civil partner 

When a spouse or civil partner dies, the estate can be transferred between the couple without incurring any IHT, and they also inherit both the nil-rate bands for the whole estate and for the main residence. Because of this, some families can pass down an estate worth a total of £1 million without paying any IHT.

However, due to tapering of the residence nil-rate band (which we explain below) it can be anything between £650,000 and £1 million.

• £2 million - the estate value at which the residence nil-rate band starts to taper

For estates with a net value of more than £2 million, the £175,000 residence nil-rate band is reduced by £1 for every £2 the estate value exceeds £2 million. The same applies to the second nil-rate band if applicable. 

In addition, inherited pensions are due to be brought into inheritance tax from April 2027.

Click here for further details on the budget announcement and our experts’ views.

If you think you might use all of this year's ISA and pension allowances, are conscious of exceeding the CGT annual exempt amount, or feel that you would benefit from professional advice, our team may be able to help. 

If you’re not sure if you need financial advice

Our financial guidance may instead be a good starting point for many people. It could provide you with the information you need to feel empowered about your finances. Financial guidance can help you to understand:

• What your options are
• Nutmeg’s different investment styles
• Which wrappers may suit your objectives
• What’s happening in financial markets

Guidance aims to help you make informed decisions and feel confident about your financial future. However, it doesn’t provide the fully tailored approach of our paid restricted advice service.

Wherever you are in your investment journey, you can use our free financial guidance service.