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How to give your finances a January detox

Posted by Adrian Lowcock in Press releases category on 04 Dec 19


January is a month when we put aside the excesses of Christmas. Many of us stay at home nursing the damage we have done to our bodies and our bank balances.

This is often the time that people join a gym or go on a diet, but it can also be a great time to give your finances a detox.

But where should you start? Adrian Lowcock, head of personal investing at Willis Owen, has nine tips to give your finances a fresh start in 2020.

1. File your 2019/20 tax return online by 31 January

Tax returns can be submitted online until 31 January 2020. 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 3 months late. 

To file a self-assessment tax return online you will need a HMRC account and this can take a week to get because you need to be sent an ‘activation code’ in the post – so don’t wait to act.

Completing a tax return also involves some preparation, as you may need to gather relevant documents such as pay slips, records of any bank interest, or dividends received in the year.

2. Review your budget

As many households will attest to, controlling spending in January can be a must as the excesses of the Christmas period come home to roost. However, this doesn’t have to be a negative experience. Use this as an opportunity to plan for the next 12 months and give any spending habits a good detox. Review 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 - in advance.

3. Consolidate your investments

Make things easier for yourself in 2020 and make sure all your investments are easy 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 the costs to make sure you pick the right platform for you. 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

Before 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. This can lead to the risk of a portfolio changing significantly, and potentially no longer be suitable.

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. This will ensure you have a balanced portfolio. 

5. Use your ISA allowance 

ISA 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 equally useful wrappers for those just starting out or those in retirement looking to take an income or draw on capital. 

6.  Review your pensions

There has been a considerable amount of change to pensions in recent years, with greater flexibility in how benefits are taken. Pensions 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, with a lifetime allowance of £1.055million and the introduction of a tapered annual allowance for high earners, it may require a change in approach to contributions. 

7.  Make sure you have a will

Dying without a will, known as intestate, can leave your loved ones and dependents in a terrible financial situation, adding considerably to an already stressful situation.

Even if you have written a will, it is important to make sure it is up-to-date with current tax rules, as well as your circumstances and wishes. The good news is a will probably only needs reviewing and updating every five years, although it should be done more frequently if there have been any major changes in your life, such as marriage or the birth of a child.

8. Maximise pension contributions

Pensions are very attractive to higher rate income tax payers, who can get effective relief at their marginal rate. In practice this means a £10,000 gross contribution from a 40% taxpayer would only cost £6,000.

The future of tax relief on pension contributions has been in doubt for several years. They cost the treasury a lot in missed tax revenue, so it is important to act sooner rather than later as the rules may change at some stage.

9. 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 £12,000 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.