Spring clean your finances
The typical approach to financial planning among architectural partners tends to be a combination of evasion, blind panic and then frustration at loss of control, poor performance and mountains of incomprehensible paperwork. To avoid the false security of keeping one's 'head in the sand', a sensible, planned, methodical approach must be adopted. So where to start?
Working backwards, it is essential that the partners have an up-to-date will. Consider how you would want your estate to devolve: it is unlikely that the rules of intestacy (how the law dictates your estate will devolve in the absence of a will) will mirror your wishes.
How will your spouse's/partner's will and yours interact with successive death? Again, it is even less likely that intestacy rules will be what you both want. Getting a lawyer to draft the will will cost a bit, and you will need to develop and adjust your plans in consultation with your spouse and for tax efficiency, but it will be worth it.
All too often we simply have insurance terms imposed on us when taking out a mortgage, or through the firm's employment or partnership 'package'.
Considering this afresh when planning a will highlights whether you need an income stream in your absence; perhaps a capital sum to pay for a nanny annexe in your spouse's absence; or even term insurance to pay the nanny.
Perhaps all three for your children's guardians in both your absences.
You might discover a forgotten account doing nothing; the odd PEP, TESSA (now TOISA) and ISA.
Perhaps some privatisation and demutualisation shares. Those too busy to plan deposit accounts can have built up substantial balances.
Add them all up to see what rainy-day fund is tucked away.
But on top of that, where should the rest be held? Can aggregating them boost the return? Should it all be in cash, or is it time to buy a spread of equities? Are those demutualisation shares now ones that you would choose to buy if you did not already hold them? With the mix determined, how should you hold them?
ISAs are free of income tax and capital gains tax (CGT), but they do have annual charges. Don't just buy one for the tax break - decide how you want to hold your funds first and then check that there is a suitable ISA to match your needs.
Differential tax rates become a factor to bear in mind. Presumably, as a higher-rate taxpayer you will have extra tax to pay on your bank interest, income and dividends. Your spouse is able to have taxable income of approximately £37,000 before becoming a higher-rate taxpayer.
If you are not working, it takes a sizeable investment portfolio to generate investment income of £37,000. In many cases, tax will be saved if shares and deposit accounts are held in the name of the non-working or lowerearning spouse. There is also a clear need for a non-earning spouse to agree on any long-term financial plans.
Essentially, decide on the level of risk you are prepared to take with your savings and then decide on the vehicle - again, a tax-efficient one such as an ISA, if it matches your overall criteria, may be attractive. When it comes to planning for retirement, the issues are the same. How much will you need, in the form of income and in liquid capital? Pension funds are taxefficient, but at the expense of some restrictions. Ideally, pension funds should be balanced with other longterm asset holdings to provide some financial flexibility in retirement.
Once you have gone through this 'spring clean' exercise, you will be able to identify the extent to which you have surplus income or capital to invest in 'riskier' investments. See the box below for a flavour of what is available. If you are considering this, make sure you understand the product (not just the marketing spin) and the risks involved.
The spring clean is now complete.
Break down the exercise and it can be achieved in easy steps that are not too daunting. And once you have established your financial planning base, it is far easier to update and develop as life, family and business circumstances change. There is therefore no excuse not to turn over a new leaf.
Louis Baker is head of partners'tax in the professional practices group of Horwath Clark Whitehill. Tel: 020 7842 7100