Adrian Lowcock, Head of Personal Investing, Willis Owen offers seven tips for detoxing your finances this January:
1. File your 2017/18 tax return online by 31 January
Tax returns can be submitted online until 31 January 2019. It is important not to miss this, or you will face a fine, starting at £100 for being just one day late, and rising by an additional £10 for each day if you are more than 90 days late. If you leave it longer than six months, you will also face an additional charge of either £300 or 5% of any tax due.
To file a self-assessment tax return online, you will need a HMRC account which can take a week to activate because you need to be sent a code in the post – so don’t wait to act.
Completing a tax return involves some preparation as you may need to gather together relevant documents such as pay slips, records of any bank interest accumulated or dividends received in the year.
2. Review your budget
Controlling your spending is particularly difficult in January as the excesses of the Christmas period come home to roost. Take this opportunity to plan for the next 12 months by reviewing all your bills and look for ways to cut them. Remove any unnecessary spending and plan to save for those larger items such as holidays or next Christmas.
3. Consolidate your investments
Make things easier for yourself in 2019 and ensure all your investments are easier to manage and review. ISAs and Self Invested Personal Pensions offer transparency and are relatively easy to consolidate on to a platform. When choosing the right platform for you think about the choice of investments, ease of use and costs. Before consolidating any pensions, first check with each pension provider that there won’t be any excessive penalties or loss of valuable benefits.
4. Rebalance your portfolio
When considering any new investments it is worth reviewing your existing holdings as well as your investment goals and objectives. Existing portfolios will drift away from their original weights over time as each investment will perform differently.
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 your existing holdings beforehand as it should provide an insight into the areas that you should focus on for any new investments to ensure you have a balanced portfolio.
5. Use your ISA and capital gains allowances
ISAs are the first port of call for tax savvy savers and investors. They allow your savings and investments to grow free of any additional tax whilst also offering considerable flexibility as you can withdraw your investments at any time without a potential tax hit on the way out. The ISA allowance is now a significant £20,000 and you can hold a wide range of investments inside them making them useful wrappers for those just starting out and those in retirement looking to take an income or draw capital.
If you own investments outside of tax free-wrappers (ISAs and pensions), then you can crystallise returns this tax year of up to £11,700 without incurring capital gains tax. Many investors forget to utilise this potentially valuable allowance. It might make sense utilising this and using the proceeds to fund an ISA or pension contribution, so that over time as much of your investments as possible are sheltered in tax-efficient accounts.
6. Review your pensions…
There has been a considerable amount of change to pensions in recent times, with greater flexibility in how benefits are taken. Pensions have now 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 which is why it is vital to review existing plans if you have not done so recently.
Recent reductions in the lifetime allowance from £1.25 million to £1.03 million and the introduction of a new tapered annual allowance for high earners may require a change in approach to contributions, including potentially taking out fixed individual protection to secure your pension against a lower lifetime allowance.
Pensions are very attractive to higher rate income tax payers, who can get effective relief at their marginal rate meaning a £10,000 gross contribution from a 40% tax payer has a net cost of just £6,000.
However the future of tax relief on pension contributions has been in doubt for several years as they cost the Treasury dearly in missed tax revenue. Although the current Chancellor of the Exchequer hasn’t yet targeted pension allowances, that could quickly change in future.
7. Make sure you have a will
Dying intestate without a will can leave your loved ones and dependents in a terrible financial position and can add considerably to an already stressful and upsetting situation.
Even if you have written a Will, it is important to make sure it is up-to-date with current tax as well as your circumstances and wishes. The good news is a Will probably only needs reviewing and updating every five years, although sooner if there have been any major changes in your life such as a marriage or the birth of a child.