With the festive season soon upon us, many people start to think about buying gifts, as well as their New Year resolutions. Thoughts about our long-term, broader financial strategy, however, are not often high on the list.
Yet Christmas, particularly during the “quiet moments”, can be the perfect time to start thinking about some of the areas where you might quickly, and efficiently, bolster the strength of your financial plan. In this short article, here are 10 areas where you may wish to focus some of your attention when things start to wind down during the holiday period.
Review your ISA(s)
In 2019-20, each UK resident is entitled to save £20,000 into an ISA and have those savings exempt from tax on interest and capital growth. This can be a great place to put cash savings and investments.
However, once the tax year has ended, you can no longer use the allowance for that tax year. The Christmas/NY period can be a great time to check whether you are on track to make full use of your ISA allowance by the 5th April (i.e. the end of the tax year).
Review your protection
It is probably fair to say that most people in the UK have insufficient financial protection in place to safeguard their loved ones. For instance, it is estimated that 8/10 people have no income protection in place to support them and their families in the event of long-term illness or injury.
Again, the end of the year can be a good time to take stock and ask yourself some honest questions about the robustness of your financial plan. Would your spouse and children cope financially if you suddenly died or became seriously ill/injured and could no longer earn? Are your current protection policies still up-to-date and appropriate for your needs?
Review your CGT allowance
Similar to your ISA allowance, there are other annual allowances which can be helpful to look at during the Christmas/NY break. Your Capital Gains Tax (CGT) allowance in 2019-20, for instance, is £12,000. Are you on track to take advantage of this by next April?
Review your annual IHT exemptions
In 2019-20, you are allowed to gift up to £3,000 free of any potential Inheritance Tax (IHT) liability. There are additional exemptions that may be available, depending on your circumstances. If you are looking to reduce future taxes on your Estate whilst giving a leg-up to some of your loved ones, consider speaking to one of our financial planners about how you can do this before the window for this annual exemption closes.
Review your pension(s)
Assuming you are not affected by rules such as the Money Purchase Annual Allowance (MPAA) or Tapered Annual Allowance, in 2019-20 you are permitted to contribute up to £40,000 per year towards your pension (or up to 100% of your salary – whichever is lower). It may also be possible to carry forward unused allowances from previous tax years.
Pension contributions can be a great way to save towards your future in a tax-efficient way, whilst possibly also reducing your IHT exposure (pensions are usually exempt from IHT). If you have not already reviewed your pension plans and contributions in 2019, it might be worth speaking with us either before the Christmas break commences or contact us in the New Year.
Review your mortgage
For many people their mortgage is their biggest liability and monthly outgoing. It is, therefore, also one of the best places to look when considering ways to make significant savings.
For instance, perhaps you are on a Standard Variable Rate (SVR) and might benefit from switching to a fixed-rate mortgage with a lower monthly cost. Or perhaps you could save money by remortgaging to another deal or lender.
Review joint allowances
If you are married or in a civil partnership, then it is possible to transfer some assets to your partner to make use of their allowances if available, as well as your own, or to be taxed at lower rates, if applicable. For instance, Capital Gains Tax (CGT) can be avoided or reduced by using both allowances to share a capital gain.
Check emergency funds
Generally speaking, it is a good idea to have between 3-6 months of your household expenses in savings as an emergency fund. This can be painful to check at Christmas given the higher spending in December! However, it can be a quick area of your finances to check and plan to correct if you are off-track or feel you are no longer where you should be.
Check your credit rating
Checking your credit score at various points throughout the year can be a good idea, as it can affect important areas of your life such as mortgage applications. There are some great online resources which are easy to use, quick and free.
Review your budget
As the New Year approaches, it can be very worthwhile to review your bank statements and check whether there are any unnecessary outgoings which you could reduce or eliminate. Direct debits are a particularly good place to start. Are you signed up to a service such as Spotify, Netflix or Amazon Prime but never use them? Do you have an expensive broadband and TV package which you could switch or scale back?
If you are interested in discussing your savings, investments or financial strategy with someone at FAS, please do get in touch. We are here to help you!
This content is for information purposes only and does not constitute investment advice or financial advice. To receive bespoke, regulated advice regarding your own financial affairs, please consult one of our financial planners here at FAS.