As the new tax year approaches, now is a perfect time to think about making your finances work for you, especially when it comes to planning your retirement. The concept of the financial year isn’t just limited to accountants or financial advisers. It affects us all, as savings such as ISAs and personal pensions have limits on how much you can invest per year. Other deadlines also depend on this calendar – which is why this is the busiest time of year, as many tax breaks cannot be carried forward to future years.
1. Double check your pension
A perfect new year’s resolution would be to check your personal pension. There are many ways you can make your money work harder for you. A Financial Conduct Authority regulated pension adviser will be able to give financial advice on whether merging pension pots – also called pension consolidation – could be a good idea, for example to take advantage of better growth, to avoid hidden charges or manage your funds easier. You could also resolve to increase your pension contributions, particularly if you have a defined contribution pension. Remember, even a small increase can have a big long-term effect on your final pension fund.
2. Pay attention to other savings
While pensions are important, there are other ways of tax-efficient savings such as ISAs.
More generally, you could resolve to get into good saving money habits – for example, investing any bonuses or unexpected income, rather than spending it straight away. If you have just paid off a debt, like a mortgage or car loan, invest the excess funds instead of getting used to it.
3. Make the most of your allowances
Your tax-free allowances for the current year expire at the start of April. You can invest £20,000 a year into an ISA, so now’s the time to top it up if you have any allowance left. Other allowances are also useful. Inheritance tax is often in the news, but you are still able to give away a total of £3,000 a year to loved ones without having to pay tax. If you sell investments that are subject to capital gains tax, your first £11,700 profit is tax-free, but cannot be carried over to next year. It’s important to take advantage of these tax-free allowances in good time.
4. Invest those bonuses
If you are given a bonus from your employer, investing it into your pension fund is a tax-efficient way of boosting your pension pot. Tax breaks are available for pension contributions, and you can normally contribute as much as you earn into your pension up to £40,000.
5. Claim what you’re eligible for
You can also claim any tax credits back. They can earn you thousands of pounds a year in addition to your household income. As the system is now being replaced by Universal Credit, it’s important to check that you are eligible, and you are receiving what you are entitled to.
The Money Advice Service gives full details of the new system:
If you are a family, look into the high-income child benefit tax charge: