With the 31st of January tax filing deadline just having past now is an ideal time to reassess your finances. Are you still on track to achieve your financial goals?
While trawling through the paperwork may have been an arduous task, you can use it as an opportunity to check the health of your personal balance sheet and review whether your money is working hard enough for you.
Income and outgoings
One benefit of the Self Assessment regime is that it forces you to scrutinise your income and expenditure and look hard at your bank statements. Seeing it all in black and white can be stark. However, if you want to achieve your financial goals, it’s important to keep on top of it all.
Realising how much money you have spent on unnecessary items can be sobering, but can help formulate a savings plan to put the cash towards something for the future.
Looking at your savings and investments, it's important to consider carefully your attitude to risk and the time period over which you intend to invest.
And remember it’s also important to keep some cash put away in an easy to access account for a rainy day. This should be at least three months’ outgoings just in case.
Making your investments work harder
If you are looking over things remember to examine all your investment products. Perhaps you have an old work pension that isn’t performing as well as you might like. If hefty charges are also eating into your returns it could be worth seeking an alternative. The average fee charged by traditional wealth managers, according to Numis Securities, is 1.8% a year. More cost effective providers, such as Netwealth, have fees between 0.9% and 0.6%, depending on the amount invested.
Consider also whether your investments are sufficiently diversified. For example, many UK investors have done well from the property market, but if property assets already form a large part your estate, adding to it by investing in real estate company shares or a buy to let could leave you overly exposed to a single asset class.
Making the most of your tax allowances
With the 5th April tax deadline just two months away, it’s also time to focus on tax planning for the current financial year.
Make sure that if you can afford it you and your family make full use of the ISA allowance for this year, which is £15,240 per person. Don’t forget the Junior ISAs either where the allowance in 2016 to 2017 is £4,080.
Capital gains tax
The capital gains tax allowance for 2016 to 2017 is £11,100. Gains above this level from the sale of assets such as art, shareholdings and property besides your main residence could be liable for capital gains tax (CGT) of up to 28%.
As you cannot carry the tax allowance into the next financial year, it may be prudent to time asset sales accordingly and split major shareholding disposals, for example, between one tax year and another.
It may also be worth switching some of your assets into your partner or spouse’s name to take advantage of their CGT allowance.
Pension tax relief
Check whether you are receiving the full amount of tax relief on your pension contributions. It is possible to claim relief on private pension contributions worth up to 100% of your earnings for the year. While many pension providers add tax relief to your pension pot at source, if you pay tax at a rate higher than 20% it is worth checking that the full amount is being claimed. If you pay 40% or 45% you can claim for the additional 20% or 25% via your tax return.
If you have any questions about how you can ensure you are making the most of your investments and the allowances available, please give us a call on 020 3795 4747.
Taxation, and reliefs from taxation can change at any time and are dependent on individual circumstances, therefore you may want to seek specific tax advice.