Seven tips for your finances in the new year
The new year is traditionally a time when people set themselves personal goals for the next 12 months. If you don’t want to join the local gym or take up a new hobby, we have a few tips for your finances that might be worth considering.
1. Prioritise your pensions
This year pensions should be a top priority for anyone who pays Income Tax at 40% or 45%, or who is on track to accumulate a pension worth over £1 million by retirement. With major changes soon coming into effect, the next few months could be the last chance to make contributions under the current generous allowances.
From April 2016 the pension lifetime allowance – the amount you can accumulate in your pensions before you pay a 55% tax charge – will be slashed from £1.25 million to £1 million. Additionally, those with annual earnings of £150,000 or more will see their annual pension allowance reduced by £1 for every £2 of income earned above £150,000.
2. Use your ISA allowance
ISAs don't have the upfront tax reliefs that pensions do, but they do have considerable flexibility as you can withdraw your investments at any time without a tax hit on the way out. ISAs have also seen some significant improvements over the last few years – the allowance is now £15,240 per person, there is greater flexibility over what can be held within them, and they can now be inherited by a spouse or civil partner without losing the tax benefits.
3. Detox your portfolio before making new ISA or pension investments
Over time your portfolio may drift as each of your investments start performing differently, and this can lead to a situation where your risk level becomes very different to what you originally intended. Of course, individual investments that may have been worth backing in the past might also need to be reassessed from time to time too. For these reasons, it is important to review and detox your portfolio at least once a year.
4. Consider bringing your investments together for more control
When investments are scattered across different accounts they can be harder to review and manage. This can be especially true of pensions, as many people will change jobs several times. Bringing your investments together with one provider gives you more control over your money*, as it'll be easier to see how your pensions and investments are performing and make changes if you need to. You could save money on fees too.
5. Send your tax return by the end of the month
Few people enjoy rummaging through their paperwork and filling out forms, so it is human nature to wait until the eleventh hour before sending your tax return. The cut off for paper self-assessment forms has already passed but online submissions for the 2014/15 tax year need to be completed by 31 January 2016. You really don’t want to miss this, as fines start at £100 for being just a day late.
6. Make use of your capital gains allowance – the forgotten allowance!
If you own investments outside tax free-wrappers (ISAs and pensions), then you have an £11,100 allowance before you pay Capital Gains Tax (CGT). Many people forget to use this potentially valuable allowance, but it can save you a fortune over time.
Investments only become assessable to CGT when a disposal event occurs, which could be when they are sold or transferred to anyone other than a spouse. Unless this takes place, the annual allowance is not used and it cannot be carried forward to future years – effectively a valuable benefit lost. As a result, many investors are hit with sizeable CGT bills when they eventually dispose of their assets.
With ongoing planning however, some or all of a portfolio can be sold to fully use an individual’s annual CGT allowance – without ever creating a tax liability. The benefit being, that upon reinvestment, the base cost used in the CGT calculation will essentially be reset to a new higher level, thereby reducing potential CGT liabilities in the future.
7. Move assets to your loved one
It is amazing how changing the ownership of investments within a household can save you tax where you are in different Income Tax bands. If you are married or in a civil partnership and own savings and investments outside pensions and ISAs, consider switching these holdings into the name of whichever one of you either isn’t working or is paying less Income Tax. Do bear in mind though that once ownership is transferred to your partner, they legally own the asset.
Speak to us to find out more
With those thoughts in mind, we wish you a Happy New Year and every success in 2016! Please call us on 020 7189 2400 or email firstname.lastname@example.org if you'd like to talk to our experts about any of these tips.
The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This article does not constitute personal advice. If you are in any doubt as to the suitability of an investment, please contact one of our advisers.
*Before transferring pensions, you should ask yourself: Will I be charged or penalised by my existing provider for transferring? Will I lose any valuable features or benefits if I transfer? Have I considered my current pension charges, and could consolidating be more expensive? Am I part of an occupational final salary pension scheme? (In which case I would most likely be better off not switching).
Please note we do not provide tax advice