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Personal Finance - Time to take good stock financially

In the fourth of our five-part series, Phil Mileham advises GPs in their 50s to review their money aims.

Saving for your future could ensure you can afford that second home (Photograph: SPL)
Saving for your future could ensure you can afford that second home (Photograph: SPL)


Personal finance for GPs.mp3





Now you are age '50-something', you may be at the peak of your career, but are you on track to meet your future goals?

Saving for the future
You may feel a sense of financial freedom if the children have left home or if the mortgage on your home has been repaid. But you probably still have goals that need money to fulfil, such as that dream holiday or a second home in the countryside.

If so, you need plans in place to achieve them, possibly involving regular saving or lump sum investment. You could consider investing in tax-efficient individual savings accounts (ISAs). In the 2011/12 tax year, you can invest up to £10,680 in an ISA without any additional tax liability.

Professionally managed unit trusts can also provide a useful, long-term home for your money. Through careful planning you can often avoid having to pay any capital gains tax on your investment by using your annual exemption (currently £10,600).

If you have, or are expecting, grandchildren, do you want to help them financially? Options include putting money in a trust for them - perhaps for their education - or even paying into pensions for their benefit.

As you approach retirement you will probably find that your appetite for investment risk reduces. You will not have so much time to see your money grow, so you might start to gradually reduce your exposure to risk and nasty stock market plunges by moving assets out of more volatile investments into more stable ones.

Closely aligned to your savings goals are your pension arrangements. It is important to check regularly that you are on track with retirement plans - especially with so much going on in the pensions world from the NHS Pensions Choice exercise to proposals to change public sector pension schemes. If you are thinking about retiring early, how will this affect your pension income?

You could boost your retirement savings using surplus income or capital. Following recent changes to legislation, the amount you can put into pensions and get tax relief on has been reduced, making it important to use what tax relief is available.

From April 2012, the lifetime allowance, the maximum you can save into a pension tax-efficiently over a lifetime, is reducing from £1.8 million to £1.5 million. Exceeding this could mean extra tax to pay so you may want to consider alternative investments.

Clearing debts
If you still have an outstanding mortgage on your home you might want to pay it off, along with any other debts. It usually makes sense to clear debts where you can to avoid paying interest on them.

With many mortgages you can make ad-hoc additional repayments to help pay off the debt early. With professional advice, you can put together a plan for clearing any debts once and for all.

Legacy planning
You should start thinking about what you want to happen to your estate when you die. The first thing is to do is to make a will.

Inheritance tax (IHT) is one tax you can actually plan ahead for. If on death your estate (which includes your home and contents, savings, investments and any other assets you own) exceeds the 'nil rate band', IHT kicks in at 40 per cent.

The nil rate band is currently £325,000. So for example, if your home and its contents is worth £365,000 and you have savings and other assets valued at £100,000, you are already £140,000 over the threshold. So there could be a £56,000 bill for IHT on your estate.

When assets are left to a spouse or registered civil partner, there is no IHT to pay, but when they in turn die, the tax man may well benefit from a slice of your estate.

Spouses and civil partners can now share nil rate bands, so at current rates, they can leave behind up to £650,000 without the estate incurring IHT.

The earlier you start planning to mitigate IHT, the easier this is. With sensible use of trusts and annual IHT exemptions and the nil rate band, you can make sure that the maximum possible goes to your loved ones and not to the government.

  • Phil Mileham is national sales manager with Wesleyan Medical Sickness, www.wesleyan.co.uk

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