At a glance
- High-earning sportspeople may make supporting friends and family a financial priority. But there are many things to consider when gifting wealth, so it’s important to take advice.
- It can be easy for sportspeople to overcommit during their earning years – but careers in professional sport are short. A financial adviser can help with cash-flow forecasting, to work out how much you can afford to gift now.
- Gifting wealth has various tax implications. Working with an expert adviser can ensure you’re passing on money in a tax-efficient manner and making the most of any available allowances.
Professional sportspeople have a tiny window of earning opportunities compared to others. While it may be tempting to splash the cash and treat family and friends, this can cause financial problems after your boots, running spikes or cricket gloves have been packed away for the final time.
There are countless sports stars who have been financially ruined despite earning an incredible amount of money during their competitive career.
Here are the five mistakes elite sports stars make when gifting wealth, in my experience.
1. Overcommitting to gifting and spending
Most professional sportspeople have single-digit years – rather than decades – in their competitive careers. However, those who are elevated to the top of their discipline can come into big money very quickly. Many families see their talented children as a way out of a dire financial situation. If someone becomes a professional sports star, family members and friends can start relying on that person to fund their lifestyle, buy them a house or gift them money. Effectively, the sports star becomes a bank account for them.
Often, without financial advice, they will overcommit to gifting and spending because they’ve never been around masses of cash before. Ultimately, it can be costly if they’re too generous too soon with gifting out wealth.
What’s needed is a blunt conversation and for a trusted expert to say: “Let’s not make silly financial decisions; let’s protect your assets.”
2. Failing to understand the tax implications of gifting
Following on from the above, young sportspeople often trust and rely on family members to manage their money – but the chances are that these relatives won’t have a good understanding of the tax implications of their decisions.
Admittedly, sportspeople want to concentrate on their jobs, so it’s understandable that they would delegate financial management and planning to others. The mistake is opting for someone who is not an expert in these matters and is ignorant about tax liabilities around gifting.
For instance, you can trigger Inheritance Tax issues when a gift is made at the wrong time in the tax year or in the wrong way. Seeking financial advice is vital to ensure you’re not holding on to money you don’t need – causing an Inheritance Tax liability – or giving away money you may require in future. A finance professional may also touch on charitable gifting and ensure you qualify for all the available tax reliefs.
3. Being exposed to legal issues due to financial mismanagement
The last thing a high-profile sportsperson wants is to end up in court, with their finances splashed on the front page of the tabloids. And that’s why a professional team of advisers comprised of an accountant, a lawyer and a financial advisor is a must.
It’s critical that your advisers only use legitimate tax planning – strategies that are inside both the letter and spirit of the legislation. Unfortunately, there are countless examples of this having been a problem, even for the best sportspeople in the world.
In almost all cases, they could have avoided these unwanted situations by engaging an expert who provided financial guidance and appropriate planning advice.
4. Not planning for ongoing costs
Appropriate cash reserves are essential for emergency and regular expenditures, including mortgage payments. It’s easy for sportspeople to hold too little on deposit, especially when their income stops, which can cause challenges.
Unforeseen costs, for example, might require a withdrawal from existing investments, which could incur a tax liability or other penalties. Due to recent interest-rate rises, managing an increase in borrowing costs, especially with multi-million-pound mortgages, could impact other areas – including the ability to gift wealth.
Without experience in financial matters, you should engage professionals who can work out what you could – and should – gift and spend based on your current and projected earnings.
It makes sense to be surrounded by professionals who can guide you through the challenging financial wilderness, which can be very strange to many youngsters – not just sportspeople.
5. Failing to engage financial experts
A common mistake sportspeople can make is not enlisting the help of financial experts who can help them plan for their future and advise on gifting wealth without it costing them in the long run.
I’m a big believer in cash-flow forecasting, a tool that allows you to enter details about assets and income and create a picture of how things might look in the future. This model helps you decide about gifting in the context of your wealth.
Additionally, financial experts can offer proper advice about putting money into trusts for children, pensions and guidance on aspects of Wills. I would urge you to put your financial goals first by using planning and professional advice before gifting any wealth.
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.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Will writing involves the referral to a service that is separate and distinct to those offered by St. James’s Place. Wills along with Trusts are not regulated by the Financial Conduct Authority.
SJP Approved 05/11/2024