We’re past what seem like the longest months of the year now and should hopefully be emerging from the winter blues. This is a perfect time to give yourself a financial check up. Especially as you only have one month until the end of the tax year to use up your allowances. Whether or not you reviewed your finances in January, why not take an evening this week to review yours now.
Here’s some things to consider:
Use Your ISA Allowance
You have until 5th April to use up as much of your ISA allowance as possible. If you don’t use it, you lose it. This simply shelters the money from tax. If you have plans for the money in the next couple of years, you should consider holding it in a cash ISA. If not, however, why not consider a stocks and shares ISA?* It can go up and down in value, but by buying and holding investments for a long time (at least 5 years minimum) you should have a really good chance of beating both cash returns and inflation. If you fancy it, see how Destination can help and try us out to see what you could do.
If you already have an ISA open with us, you can top it up (subject to your £20,000 annual allowance). Realistically, this should be done a few days before the end of tax year to be sure it is in your account in time.
Review Your Cash ISA
What interest is your Cash ISA paying you? Chances are it isn’t keeping up with savings accounts which are now typically paying between 1 – 1.5% interest. Especially if it’s an old cash ISA, you probably had a bonus rate which is now gone. You might not even be making 1%!
Consider this: You have a Personal Savings Allowance of £1,000 which can be earned from interest if you are a non or basic rate tax payer before tax is payable. This decreases to £500 if you are a higher rate tax payer. If your savings account pays interest of 1.5%, you would need to have £66,666 in the cash savings account already before you had any benefit of tax-free interest in a Cash ISA. If you are a higher rate tax payer, you need £33,333 in a cash savings account before the Cash ISA is any benefit.
Review your Pension Contributions
There are reports that the government gave up to £25 billion worth of income tax relief on pension contributions this year. Make sure you are getting your fair slice of it. If you haven’t already done so, review your pension contribution. The minimum contributions through auto enrolment will increase to 5% from your pay in April. If you can afford to do more, do it! You are the one who will benefit in the long run, and the minimum contributions really aren’t going to provide for the comfortable retirement you probably want. Here’s an interesting one on how much you should have saved in your pension already
High Income Child Benefit Tax Charge
If you, or your partner, earn over £50k and are claiming Child Benefit, you need to be careful. There is something called the High Income Child Benefit Tax Charge, where those who earn over £50,000 per annum lose their child benefit. For every £100 you earn over £50k, you pay tax equal to 1% of your child benefit received. Once you earn over £60k, you aren’t entitled to child benefit. This is equally true if dad earns £60,000 and mum earns nothing, they will lose all child benefit, whereas if mum and dad both earn £49,000 each, they can still claim Child Benefit.
Consider making an additional pension contribution to get around this. For example, if you are set to earn £52,000 this year, you could make a net pension contribution of £2,000 to bring your Adjusted Net Income below the threshold, and then you won’t lose any.
Review Your Monthly Savings
Something I always talk about is to “Pay Yourself First.” This means that as soon as you get paid, you set up a transfer to pay £250 per month into cash savings account or your stocks and shares ISA. If you’ve been doing this, brilliant. But how often do you review how much you pay yourself? Are you worth a pay rise?
I believe that if you are saving money, for it to be as effective as possible, it should hurt you a little bit. After all, no pain no gain! What I mean by this is if you are comfortable saving £250pm to the point you don’t even notice it, increase your payment to £300. Keep increasing until you start to notice the money missing from your account. If it makes you think twice about buying something you don’t need, you have your monthly pay just right!
Review your back up plan
Maybe you’ve moved house this year, or maybe you’ve had children, or maybe you’ve changed job. Any little change in your circumstances should make you review your back up plan. Three protection policies almost everyone should consider are
- Mortgage Protection – a policy which will pay out enough to pay off your mortgage on your death or diagnosis of a critical illness
- Life & Critical Illness Cover – a policy which will pay out a lump sum, hopefully in trust, for your husband/wife/children on death or diagnosis of a critical illness
- Income Protection – a policy which will pay you out a tax free income after you’ve been unable to work for a certain time frame (normally 3 or 6 months).
I hope these will all be the worst investment you ever make. By that I mean, you pay all the premiums but they never pay anything out. However, if anything happens to you where they would pay out, they very quickly become the best investment you ever made. It isn’t good enough to just put them in place and forget about them – you should regularly keep them under review to ensure they are sufficient, and make sure they are in trust. If you haven’t a clue what a trust is or why you need your life cover in one, give me a shout now!
If you have given these 6 areas of your finances a spring clean, you shouldn’t have too many worries until something changes and you need another regular check up!
*Please note that past performance is not a guide to the future, the value of an investment and the income from it could go down as well as up. You may not get back what you invest.
^^This communication is for general information only and is not intended to be individual advice. It represents our current understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action