Making partner

If you’ve just made partner – congratulations. Those late nights, big targets and high expectations have finally paid off. But with a new job comes new financial responsibilities. Here’s how to smooth the transition from senior associate to partner.

The key changes

Making partner is a pivotal moment in your legal career. From now on, you can look forward to increased rewards, respect and peer recognition. The most obvious reward is the leap in income. The average salary of an associate solicitor in a mid-size firm is around £62,000 but that may jump by £10,000 or significantly more on becoming a partner (Payscale, Average Law Firm Partner Salary in United Kingdom Salaries, November 2022).

Some new partners remain salaried, but many others will become equity partners – making the transition from employed to self-employed. Becoming self-employed means you’ll have far more control over your own personal finances, but you will also be responsible for a whole host of things that used to ‘come with the job’. And if you’re an equity partner, you’ll also have brand-new responsibilities for managing and running your law firm in return for a share of the profits.

What you win, what you lose

Reward, recognition, peer respect. These are your big wins. But you also lose a few things when you make partner.

As an associate, you probably had a good benefits package, covering your pension, health insurance and even club memberships. As a self-employed partner, you’re now responsible for your own financial and personal wellbeing, from your pension to income protection. 

With pensions for example, you have an almost dizzying range of possibilities, but investing now, as your earning power is increasing, is a wise move. There are plenty of tax-efficient ways to do this. Financial advice can help guide you through this important stage in your career. 

Make financial plans

More money can create the need for more complex financial arrangements. Even well paid partners can lie awake at night, worrying about their tax bills. 

But with careful forward planning, you can start to turn that extra money into wealth that will last a lifetime. Taking financial advice at this point in your life will help you plan, protect and provide for yourself, your family and the future you imagine.

Tax planning

As a new partner, your earnings increase overnight. It can be easy to sit back, enjoy that extra cash right now and start to live the lifestyle you’ve waited and worked for.

But more income means increased tax bills and learning to manage your personal cash flow. Cashflow can – and does – trip some new partners up, and result in the need for a last-minute January cash loan to cover the bill. Cashflow modelling is key to helping you plan and prepare, so that you’ve got the money ready and waiting at tax-year end.

When you become a partner, you’ll need to let HMRC know, and file tax returns by 31 January each year.

Financial advice can help you make sure you’re making full use of all the tax-efficient allowances such as:

• the £20,000 annual ISA allowance
• your personal allowance
• the capital gains tax allowance.

Building a profitable practice

Becoming an equity partner means you take an active role in deciding the financial direction of the practice. You’ve got a vested interest in making sure your practice runs tax-efficiently – and profitably – so everybody benefits from more dividend income or higher bonuses.

For most new partners, this involves a brand-new skillset. From profit and loss sheets, corporation tax or managing cashflow to absorb lock-up periods to pension auto-enrolment.  

Planning for your employees

As an equity partner, you’ll take on new responsibilities regarding your staff’s benefits package too. Putting together an attractive package that includes flexible working and wellbeing support is as important to many legal professionals as the salary.

The value of an investment with St. James’s Place will be directly linked to the performance of 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. The value of any tax relief depends on individual circumstances. 

St. James’s Place representatives represent only St. James’s Place Wealth Management and advise on the range of products and services available through the St. James’s Place Group. 

SJP approved 4 April 2023