Archived article: This article was correct at the time of publishing. Tax, investments and pension rules can change over time so the information below may not be current.

Achieve your financial goals for the end of the tax year

Christmas is over and attention has now turned to the investment outlook for 2017. This time of year is also when people set personal goals. With that in mind, we thought we would suggest eight potential financial goals that savers and investors, anxious to get their finances in shape for 2017, might want to consider. The good news? While many of us forget about the personal goals we set in January as the year goes on, most of the goals below only need to be adhered to until (and can be achieved by) the start of April – the end of the tax year.

Jason Hollands Jason Hollands
12 January 2017
  1. File your 2015/16 tax return online by 31 January

    Few people enjoy filling out forms, not least lengthy ones for the taxman. So it’s only human nature to leave completing an annual tax return until the eleventh hour. The deadline for submitting paper-based returns for the 2015/16 tax year has already passed, but returns can be submitted online until 31 January 2017. It’s important not to miss this or you will face a fine, starting at £100 for being just one day late, and thereafter an additional £10 for each day if you are more than 90 days late. If you delay by 6 months, you will also face all of these penalties plus the higher figure of either a further £300 or 5% of any tax due.

    To file a self-assessment tax return online you will need an HMRC account. This can take a week to set up because they will send you an ‘activation code’ in the post – so act now if you do not have one.

    Furthermore, completing a tax return involves preparation in terms of gathering together relevant documents, such as pay slips and records of any bank interest or dividends received.

  2. Review and detox your existing portfolio before investing in a new ISA or pension

    One of the biggest mistakes some investors make is getting caught up in the end-of-tax-year frenzy and choosing investments on an ad hoc basis. It is so easy to get distracted by whatever funds are the flavour of the month without first considering how these might fit alongside an existing portfolio. It is however vital to understand your overall goals, risk appetite and strategy as a precursor to investing any new money into the markets.

    Existing portfolios also drift over time, as different investments held don’t all move in tandem, which can lead to a situation where the risk profile of a portfolio mutates into something very different from what may have originally been intended. And of course, individual investments that were worth backing in the past might need to be reassessed from time to time.

    For these reasons, it is vital to review your portfolio and potentially give it the equivalent of a ‘detox’ at least once a year. Given that many people make new investments in February and March in the run-up to the tax-year end, it is a good discipline to review what you already hold ahead of this. The process should provide an insight into the asset classes and markets that you should focus on for new investments in order rebalance your overall portfolio.

  3. Consider consolidating your investments for greater control

    One of the things that can frustrate an investor’s ability to effectively manage and review their investments is when they are scattered around in different accounts. This is especially true of pensions, because people can end up accumulating several as they change jobs during their working lives. But these days the ISAs and Self-invested Personal Pensions (SIPPs) offered by firms such as Bestinvest offer an incredible amount of choice within a single account. Consolidating your investments might enable you to have greater control over your investment strategy, without sacrificing choice. However, before consolidating your pensions, do first check with each pension provider that there won’t be any excessive penalties or loss of valuable benefits. If you are near retirement or don’t need the additional flexibility of a SIPP it may not be worth considering a transfer at all.

  4. Review your pensions…

    Pensions have changed considerably in recent times. There is greater flexibility over how you can take pension benefits and they have also become a very tax-efficient way to pass wealth on to the next generation. Yet many old pension contracts may not be able to facilitate these features and it is therefore vital to review existing plans if you have not done so recently.

    Furthermore, recent reductions in the lifetime allowance from £1.25 million to £1 million and the introduction of a new tapered annual allowance for high earners may require a change in approach to contributions. This includes potentially taking out fixed protection and individual protection to secure your pension against a higher lifetime allowance.

  5. ….and your Wills

    Many people don’t like thinking about the inevitability of their death and it is estimated that around two thirds of adults have not made a Will. Dying intestate can leave your loved ones and dependants in a terrible financial state.

    Yet even if you have written a Will, it is important to review it periodically to make sure it’s up-to-date with current rules on Inheritance Tax, your circumstances and wishes. A sensible timescale is to review your Will every five years – but act sooner if you have experienced any major changes in your life such as divorce, marriage, the birth of a child, or death of a named executor in your Will.

  6. Maximise pensions – while you can

    Pension contributions have long been considerably attractive for those subject to the higher rates of income tax. They can get effective relief at their marginal rate, meaning a £10,000 gross contribution from a 40% taxpayer has a net cost of just £6,000.

    Yet the future of these reliefs, which represent a considerable cost to the taxman’s coffers, must be in doubt as the Government has already conducted a consultation into them. Although the previous Chancellor, George Osborne, concluded in early 2016 the time wasn’t right for a fundamental shake-up on pension tax reliefs in the run up to the UK’s referendum on its EU membership, there is no certainty that this issue has gone away for good. Indeed figures from across the political spectrum clearly have them in their sights with calls for their abolition or replacement with a less generous, flat rate.

    No one knows how long the current regime will remain in place, but do not take it for granted. Those able to benefit from higher-rate relief on pension contributions should seriously consider taking advantage of the current generous regime while it remains available, including potentially mopping up unused allowances from the previous three years via carry forward.

  7. Use your ISA allowance

    ISAs may not have the upfront tax relief of pensions, but they do offer considerable flexibility, as you can withdraw your investments at any time without a potential tax hit on the way out. ISAs have also seen some significant improvements over the last few years, with the allowance scheduled to jump from £15,240 per adult this tax year to a thumping £20,000 in 2017/18. There is greater flexibility over what can be held in them and the ability for a spouse or civil partner to inherit the allowance upon death of their partners.

    While most people may not have such large amounts of spare cash to invest each year, consider using existing taxable investments to fund an ISA.

  8. Make use of your capital gains allowances

    If you own investments outside of tax free-wrappers (ISAs and pensions), then you can crystallise returns this tax year of up to £11,100 without incurring Capital Gains Tax. Many investors forget about this potentially valuable allowance. It might make sense to use this and then have the proceeds fund an ISA or pension contribution, so that over time as much of your investments as possible are sheltered in tax-efficient accounts.

    We hope that some of the financial goals set out above help point you in the right direction. But if you do need any help with your investments, please give us a call on 020 7189 2400 or email best@bestinvest.co.uk. Someone from our team would be happy to help.

Important information

Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Self-directed investors should regularly review their SIPP portfolio, or seek professional advice, to ensure that the underlying investments remain in line with their pension objectives.