Give your finances an MOT this new tax year18 April 2018
At the start of the new tax year, many people will be aware of their renewed ISA allowance and the benefits of contributing early, but there is a lot more you could be doing to make the most of all the allowances available to you. As Ian Dyall, head of estate planning at Tilney, suggests, now is the perfect time for a ‘financial MOT’.
“It is sensible once a year to take stock of your finances to see where you are in terms of expenditure and income levels. It is even worth looking at your insurance arrangements and ensuring you have the best deal and the level of cover is still adequate, as the value of assets such as jewellery and collectibles can change significantly over time. Some people use a trigger such as a birthday to do this, but as we have just entered the new tax year, with a range of new allowances available to you, now is as good a time as any.
“All investors should be spending time this new tax year re-evaluating their goals and what they are trying to achieve. From there they will be able, with the help of their financial planner, to ensure their financial plan is structured accordingly.
- Secure your current financial position. Whilst building your wealth is important, securing against a major financial hit may prove to be even more so. Ask yourself, what would happen if I had an extended period of redundancy, how long could I pay the bills? If I was ill for an extended period, what cover do I have in place? Holding sufficient emergency funds in accessible investments can ensure that you can survive a potentially devastating setback without suffering permanent financial harm. Personally I like to keep 9 months expenditure in readily accessible investments.
- Start saving as early as possible for your retirement. Investing in a pension is probably the most tax efficient way to do this, but pension money cannot be accessed before age 55. If you feel that you do not have sufficient accessible funds to survive an emergency then ISAs may be a more flexible, tax-efficient alternative to start with. Particularly as the allowance is a far more useful figure now at £20,000.
- Maximise use of your tax free allowances. If you have no new money to invest but hold assets in shares, unit trusts or other taxable investments it may make sense to use your annual Capital Gains Tax allowance to move money into your ISA to benefit from tax free growth and income. This is even more important now that the annual Dividend Tax Allowance has just been cut.
- Utilise your partner’s allowances. This year the Dividend Tax Allowance has been reduced from £5,000 to £2,000, how will this affect your tax bill for the year? You may be able to reduce your liability by using the allowance of your spouse/partner. It is common for people to hold the majority of the income or investments in one spouse’s name. By sharing the income and investments between partners you can use both partners’ allowances, doubling the amount that comes into the household tax free. Interspousal transfers of assets are easy to make and do not crystallise any liabilities to capital gains tax.
- Can you afford to help your family? An adviser can help answer this by assessing how much money you will need for your own use using cash flow forecasting. Once you have secured your own financial position, you may wish begin helping your children and grandchildren to secure theirs by making lifetime transfer of wealth. Gifting small amounts each year using the exemptions from inheritance tax is a good way to start doing this. For example, you can gift up to £3,000 inheritance tax free to your dependents. If you have more income than you need, regular gifts from excess income are also exempt from inheritance tax. If these gifts are used to fund bare trusts for minor grandchildren it is possible to utilise the grandchild’s income tax and capital gains tax allowances to build up a fund that suffers little or no tax that can be used to fund education or a deposit on their first home.
“The key to success is thinking about what may happen over the year ahead, planning in advance and sticking to the plan. Few of us are naturally good at saving so ‘save first and spend what’s left’ is a good maxim to live by when planning your finances.”
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.