Save, spend, or invest?

Had a high-earning couple of years? With both interest and inflation at record highs, plus changes to the tax regulations, it can be a difficult call knowing what to do with that increased income. Expert financial advice can help you make some tax-efficient choices, as Rachel Lacey explains. 

Making the most of a successful year

This has been a bumper year for the legal profession. Despite the rising cost of living and the volatility of stock markets, up to 90% of UK law firms and many legal professionals have seen increased fee income, and 65% saw a jump in profits, as reported on Legal Futures. It’s a trend which looks set to continue. (Legal futures, "Bumper year" for big law firms but staff turnover is on the rise, 2022.)

Fair recompense for those long hours and tough performance targets. But managing a peak in income can be as tricky as managing the troughs.

Financial advice can turn good years into great ones

If you're mulling over what to do with the extra money, it can be tempting to spend it or put it all into one savings account. However, taking financial advice before you decide what to do can turn a good year into a great one.

What to do with a cash windfall

If you’ve plans for the immediate future, you may not want to tie money up in investments. Though interest rates are rising at the moment, making the most of cash savings can be dependent on the ability to search for the maximum interest rates available. For example, SJP’s Cash Deposit Service, powered by Flagstone, is a secure digital cash platform with access of up to 50 different savings accounts for amounts of £50,000 and above. The service ensures you earn as much interest as possible, a useful tool in the current climate.

Top up your pension

Putting some of that extra income away for your own retirement is a wise move, even if retirement’s still a long way off. Pension contributions are tax-efficient and are boosted by the government’s tax relief. You can put up to the £40,000 allowance, or 100% of your income, whichever is lower, before you will be liable for tax.

It’s especially useful to take financial advice if you know you’re approaching the ceiling of the pension Lifetime allowance – currently £1,073,100 – so you can discuss other ways to manage your tax bill, such as maximising your ISA investments, or gifting to your children.

Gifting to loved ones

You might want to help your children or grandchildren get a head start financially – and a cash gift to them could go towards a deposit on their first flat, or a gap year. You can gift up to £3,000 tax-free in any tax year, and best of all, if you didn’t make any gifts in recent years, you can back date that by 2 years, so you could gift £6,000.

Parents or guardians can also open a Junior ISA, or even a child’s pension; both of which are tax-efficient. Another excellent way to help out your family, and keep your tax bill down.

Financial advice isn’t just about money

1 in 4 of us worry about money every day, even in the good times. (Wagestream, The State of Financial Wellbeing, 2022.)

At SJP, taking care of your financial wellbeing, and that of your family, is as important to us as looking after your finances. We help provide peace of mind to all our clients and help them feel confident about managing their money.

The UK legal profession looks set for another bumper year, so now is a good time to plan ahead. If you’d like to speak with a St. James’s Place adviser, you can find one local to you. Just get in touch with us today.

St. James’s Place and The Law Society

St. James’s Place is one of the UK’s leading provider of financial advice. We’re proud to be in partnership with The Law Society of England and Wales, and to support Law Society members with financial advice throughout their professional careers.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society, as the value & income may fall as well as rise.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.

 

About the author

Rachel Lacey is a freelance journalist, specialising in all things personal finance. Before going freelance, Rachel was at Moneywise for 17 years, during which time she also edited How to Retire in Style – a dedicated retirement planning magazine.

St. James's Place Representatives represent only St. James's Place Wealth Management plc, which is authorised and regulated by the Financial Conduct Authority.

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