We are now well and truly in the run up to Christmas with thoughts mainly heading towards who we still need to buy presents for, whether we have enough food for the festive period, and even do we send traditional cards or e-cards this year?
At this time, the thoughts of our personal finances are not high on the agenda, other than the perennial question, how much have we spent on Christmas this year? With this in mind, our 12 financial planning tips of Christmas are designed to give you some bite sized thoughts to consider at those odd quiet moments, which will hopefully give you a head start when you turn your thoughts to getting organised in 2019. Just effecting change in one or two of these areas could make a big difference in the long run.
Tip 1: Maximise Cash Returns
We all know that we can move our deposits to capitalise on the best interest rates out there, and try to maximise the £85,000 protection granted by the Financial Services Compensation Scheme (FSCS). However, the idea of constantly monitoring this, combined with the lengthy application and anti-money laundering process, usually means that this is something that is always left in the “should do that, but too much hassle right now” pile.
It is with this conundrum in mind that many of our clients have now placed their cash deposits within the Partners Wealth Management Deposit service. We have taken advantage of cutting edge technology and the advent of challenger banks to allow you to access over 200 accounts through one simple arrangement. This allows you to maximise both your deposit protections and your cash based returns, and it allows you to move from one account to another at the touch of a button should the best rates change and/or new rates be offered.
Tip 2: Transfer to income producing assets
It is easy for a couple to forget to use both party’s Income Tax personal allowance, dividend personal allowance and lower/basic rate tax bands. You should consider transferring income producing assets between you and your spouse/civil partner in order to maximise these as far as possible. Less paid in tax simply means more for you.
Tip 3: Use your Capital Gains Tax (CGT) allowance if you can
Up until the end of the tax year you can use your £11,700 exemption (2018/19) to realise capital gains tax free from investments (to provide a tax efficient income slice, or perhaps reinvest). It makes sense, where possible, to use this, and remember spouses/civil partners can transfer assets between them so that both can benefit from the exemption.
Tip 4: Review your mortgage
There is a definite view that the current rates of interest in the UK are unlikely to drop again in the foreseeable future, and much of the data now combined with growing Brexit uncertainty, means that now could be a very good time to review your mortgage and lock in to a fixed rate mortgage. Our industry recognised team is well placed to help you find the best deals for you and your circumstances.
Tip 5: Save to pensions
Pensions remain one of the most tax efficient and flexible ways to save for your future financial freedom. The annual allowance for contributions is £40,000 (2018/19), but decreases if your earnings are above £150,000. The scale of this reduction is such that if you earn more than £210,000, your annual allowance will be £10,000. Remember that unused allowances from the previous 3 tax years can be “mopped up.”
The additional benefit of pension contributions is that if you earn in the 60% bracket through the loss of your personal income tax allowance (£100,000 – £123,700), making a pension contribution can allow you to save this level of tax and re-establish your ability to claim your personal allowance.
Tip 6: Maximise ISAs
The annual ISA allowance is £20,000 per person, and the junior ISA allowance is £4,260 (2018/19). Where possible, it makes sense to maximise your ISA contributions each year to benefit from this tax efficient savings medium.
Tip 7: Consider Pensions for children/grandchildren
It is possible to save up to £3,600 gross (£2,880 net) for each of your children/grandchildren. If the maximum is saved from birth to age 18, by the time the child reaches age 55, this will be worth nearly £100,000 after inflation has been taken into account (Source: Legal and General assuming an investment return of 5% per annum and inflation of 2.5% per annum).
It is also possible to save up to £3,600 to a pension each year for a non- earning spouse.
Tip 8: Gifting for Inheritance Tax – Annual Exemption
Nobody likes to pay too much tax, but the universal dislike of Inheritance Tax is widely recognised. There are many forms that gifts can take, and you can act at any time to do this. There are many ways to mitigate this taxation, each with differing rules attached to them. However, for the purposes of this tip sheet, if you are able to, you should consider making use of the annual exemption that allows you to gift up to £3,000 per year. Remember, if you didn’t use this allowance last year, you can carry forward last year’s allowance to allow you to contribute up to £6,000 as gifts this year.
Tip 9: Gifting for Inheritance Tax – Potentially larger gifting for Inheritance Tax (out of normal income)
In addition to the annual exemptions noted above, you can also give regular gifts out of ordinary expenditure in excess of the £3,000 annual allowance. As long as there is a regular pattern and the gifts are from income and not capital, these will not be assessed for Inheritance Tax. This could be a particularly useful additional benefit when looking at helping fund grandchildren’s school/university fees, junior ISAs or their pensions.
Tip 10: Consider Venture Capital Trusts (VCT)/Enterprise Investment Schemes (EIS)/Seed EIS
These investments generate a 30% income tax credit by way of a tax reduction (50% for Seed EIS) to offset against income tax liabilities. Care should be taken, however, due to the high risk nature associated with investing in small businesses. These do nonetheless represent extremely tax efficient vehicles for those with an appetite for risk.
Tip 11: Landlords
Be aware that the deductibility of mortgage interest and other finance costs against rental income will increase from April 2019 to 75%, and will be restricted by 100% by April 2020. Steps can be taken to mitigate the impact of this restriction, such as incorporation, and it may be sensible to investigate this sooner rather than later to help save more tax on the rental income.
Tip 12: Do you have enough protection?
It is widely recognised that there is a protection gap in the UK; most people do not have enough protection in place to ensure that they or their loved ones will be secure in the event of any unfortunate event. If you are unsure whether your loved ones would be able to continue with the lifestyle you would wish for them/repay debts etc. in the event of something happening to you, a review of both the level of cover and whether existing contracts continue to be cost effective and appropriate should be a priority.
If you would like to discuss any of the above, please contact your usual Partners Wealth Management adviser, or call us on 020 7444 4030 for an initial conversation.
The contents of the article have been prepared solely for information purposes. The article contains information on financial products and services and such information is designed for and addressed solely to individuals seeking generic industry information.