If you have gone through our 5 steps to creating a budget and feel like you have everything under control, what next?

The 6th point in our guide to Spring Cleaning your finances is to avoid lazy taxes; not paying these can have positive effects on your cash flow.

What is lazy tax?

There are two dimensions to this:

1. Lazy tax is paid by suckers when they don’t take action to explore cheaper options for goods and services, they are currently consuming

2. Loyalty tax is charged by companies who penalise their existing customers by making them pay higher prices than new ones

This is not an official tax, it is simply the penalty you pay for not spending the time to shop around to avoid it.

When buying something new, most consumers tend to research what they are buying and where they are buying it from to get the best deal. We would normally check the online price of a shiny new TV for watching Netflix, before going ahead and just buying at first sight in Fortress.

The same goes for financial services; many of our new Financial Planning clients in Hong Kong come to us for advice on existing products such as long-term savings plans, insurance contracts and mortgages which may have been the best deal available at the time of buying them, but can often be replaced with a more suitable alternative?

How can I avoid paying it?

We recently had a client who came to us for some advice on their existing UK pensions which had been consolidated by a previous financial adviser in Hong Kong, but there were savings to be made on the funds being invested in also an outstanding amount which needed to be tracked down.

Following on from this we investigated their existing life insurance cover which had exceeded the fixed premium term and moved to an annually renewable rolling premium. Much like when a mortgage deal ends, and the bank moves you onto the often-higher variable rate…

We approached several different providers through our licensed insurance company to obtain quotes, and eventually, we managed to save the client over US$10,000 per year on their premiums. One main reason was that the original policy was based on smoker premiums and the client had successfully quit several years ago.

In addition, life insurance contracts in Hong Kong normally pay high initial commissions to the brokers, paid for through increased premiums. We write insurance through our licensed insurance company for a fixed fee so even though our client was 10 years older, we managed to achieve a premium reduction.

This is just one example of many. Another common oversight is not assigning existing insurance policies into trust. UK-domiciled individuals (more on that here) should always go through this exercise as the insurance pay-out would otherwise be paid into your estate on death, potentially incurring a 40% inheritance tax charge.

What else can I do?

Some other areas we find lazy tax being paid:

• Not Paying UK National Insurance Contributions
• Not making TVC contributions or forgetting to include them on your tax return
• Continuing on a variable rate mortgage once the fixed term deal has ended
• Paying for subscriptions you no longer use
• Holding on to high-cost Investment Linked Assurance Schemes when there are cheaper alternatives available

If you are stuck holding old financial products and unsure of the best route forward, get in touch.

We can help you to de-clutter that “Money Stuff” folder/draw you have at home, and organise your finances, giving you peace of mind and leaving you confident that you’re on track to a stress-free retirement.

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