Are you making the most of your finances?

During this period of austerity, why pay more tax than you need to? Sensible tax planning is an essential tool in making the most of your finances. Keeping your tax bill to a minimum is not a matter of aggressive or complex tax schemes, but rather of identifying which of the many tax reliefs and allowances specifically granted by law are available to you.

Here are some ways to help you keep hold of more of your hard-earned money:

Check your tax code
If applicable, look at your pay slip or ask your tax office for a coding notice. This details your allowances and any deductions due to state benefits or taxable employee benefits. If you’re not sure it’s accurate, query it. Errors will affect how much you pay and may result in a large tax demand if you’re paying too little. You may be paying too much if, say, you change jobs and your correct tax code isn’t used – or if you have more than one job. You can claim back overpaid tax for up to four years.

Maximise personal allowances
Ensure that you are making the most of your individual tax-free personal allowance (PA), which for 2013/14 is £9,440 for those aged under 
65, or the age-related allowances which are worth up to £10,660 assuming your maximum income doesn’t exceed £26,100, after which your PA would reduce by £1 for each £2 earned above this figure, until it reached £9,440.
If your spouse or registered civil partner has little or no income, consider transferring income (or income-producing assets) to them to ensure that they are able to make full use of their PA. Care should be taken to avoid falling foul of the settlements legislation governing ‘income shifting’. Any transfer must be an outright gift with ‘no strings attached’.

Make the most of your Individual Savings Account (ISA) allowance
Up to £11,520 can be invested in an ISA this tax year, of which up to £5,760 can be invested in a Cash ISA. Most income accrues tax-free, although the tax credit on UK dividend income cannot be recovered.

All investments held in ISAs are free of CGT. And don’t forget, the new Junior ISA (JISA), for those aged under 18 who do not have a Child Trust Fund account, allows investment of up to £3,720 in 2013/14. 16 to 17-year-olds can also invest up to £5,760 in an adult Cash ISA, even if they already have a JISA.

Use your capital gains tax (CGT) allowance
Make the most of your CGT exemption limit each year (£10,900 in 2013/14). It may be possible to transfer assets to a spouse or registered civil partner, or hold them in joint names prior to any sale to make full use of exemptions. Individuals with a particularly large gain may want to realise it gradually to take full advantage of more than one tax year’s allowance. (You should only consider spreading a disposal of, for example, shares if you will not be putting your gain at risk in the meantime.)

Use your occupational pension scheme
Opting out of your occupational pension scheme could mean that you are missing out on valuable pension contributions from your employer. If you are offered a pension scheme by your employer, then it is worth considering joining. If your employer makes a contribution to your pension, this is like receiving additional pay. Some employers may even be willing to match the contributions that you make, doubling the amount saved towards your retirement.

Get a tax boost for your pension contributions
If you’re a UK taxpayer, in the current 2013/14 tax year you’ll receive tax relief on pension contributions of up to 100 per cent of your earnings or a £50,000 annual allowance, whichever is lower. For example, 
if you earn £60,000 and want to put that amount in your pension scheme in a single year, you’ll only get tax relief on £50,000. Any contributions you make over this limit will be subject to Income Tax at the highest rate you pay. However, you can carry forward unused allowances from the previous three years, as long as you were a member of a pension scheme during those years. The annual allowance is reducing from £50,000 to 
£40,000 in the tax year 2014/15.

Non-taxpayer? Don’t pay tax at source on your savings
As a non-taxpayer, you can pay too much tax on your savings, as tax on interest is deducted at source. If this has happened, complete an R40 Tax Repayment Form for each year you’ve paid too much. A form R85 from your building society or bank will stop future interest being taxed. Often non-taxpayers fail either to elect to have interest paid gross or to reclaim any overpayment from HMRC. This could result in you paying unnecessary tax and reduces the value of your savings.

Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The value of your investments can go down as well as up and you may get back less than you invested.

Tax-efficient investing made easy

An Individual Savings Account (ISA) is a tax-efficient ‘wrapper’ designed to go around an investment. You’ve got until 5 April 2014 to use your current 2013/14 tax year annual ISA allowance before you lose it forever.


Splitting the investment
The crucial thing to remember is that in every 
tax year – which runs from 6 April one year to 
5 April the next year – you’re only allowed to invest a certain amount in your ISA. In this 2013/14 tax year, which ends on 5 April 2014, you can invest a total of £11,520 – made up from just the money you pay in, not the interest or growth earned.

This amount can be split in a few different ways. For example, you could save up to a maximum of £5,760 in one Cash ISA. The other £5,760 could be invested into a Stocks & Shares ISA with the same provider, or a different one. Alternatively, you may wish to invest up to the full £11,520 in just a Stocks & Shares ISA.

Tax-efficient returns
Any ISA investment growth, no matter how much, is free from income and capital gains tax (a 10 per cent tax credit is still payable on UK share dividends and cannot be reclaimed).
Make sure that you don’t miss out on tax-efficient returns and start reviewing your options now.

Transferring other ISAs
As well as currently being able to invest your full ISA allowance of £11,520 in a Stocks & Shares ISA, you can also transfer some or all of the money held in previous tax year Cash ISAs into a Stocks & Shares ISA. A Stocks & Shares investment is a medium- to long-term investment, but remember the value of your investment can go down as well as up and you may get back less than you originally invested.

Junior ISAs
A Junior ISA (JISA) is a long-term, tax-efficient savings account for children. Your child can have a JISA if they are under 18, live in the UK and weren’t entitled to a Child Trust Fund account.

There are two types of JISA: a Cash JISA, and a Stocks & Shares JISA. Your child can have one or both types of JISA. Children aged 16 and 17 can open their own JISA, or it can be opened by the person with parental responsibility for the child.

Anyone can pay money into a JISA, but the total amount can’t exceed £3,720 in the current tax year. For example, if your child has £1,000 paid into their Cash JISA from 
6 April 2013 to 5 April 2014, only 
£2,720 could be paid into their Stocks & Shares JISA in the same tax year.

Do you have a long-term investment strategy?

The complexity of today’s economic and global conditions, coupled with uncertainty in Europe, North America and China, have combined to create a degree of cautiousness among many investors. A long-term investment strategy could provide you with a clear advantage during uncertain times.

One of the world’s 
richest investors
Warren Buffett is one of the world’s richest people and is a highly successful investor. He’s achieved this partly by identifying companies that he believed were worth more than their market value, investing in them and, crucially, holding that investment for the long term. It sounds remarkably simple, but given the ups and downs of the global markets, it takes a high level of discipline, nerve and conviction in your decisions.

Keep focused on your end goals
It’s important to have in place a sound investment strategy to keep you focused on your end goals and not to let market noise sway you. If appropriate, consider investing at regular intervals over the long term. Keep on investing through market lows when share prices are undervalued, so that you gain more wealth when markets rise again. This can help smooth some of the stock market ups and downs and you avoid investing all of your money when the market is at a peak.

Your attitude towards investment risk
Understand your time horizon and your attitude towards risk. They affect how you invest. We’re all different, and our personal risk attitude can change with our circumstances and age. The nearer you approach retirement, the more cautious you’re likely to become and the keener you’re likely to be to protect the fund you have already built. Note that the value of your fund may fluctuate and you may not get back your original investment.

Spread risk through diversification
Diversify your portfolio so that when one part of the market does not perform it is balanced out by another part of the market that does. View your investment portfolio as a whole. Asset allocation is the process of dividing your investment among different assets, such as cash, bonds, equities (shares in companies) and property. The idea behind allocating your money among different assets is to spread risk through diversification – the concept of not putting all your eggs in one basket.

Assets that behave differently
Balance your portfolio and maintain a sensible balance between different types of investments. To benefit from diversification, you need to invest in assets that behave differently from each other. Each asset type has a relationship with others – some have very little or no relation to each other (known as a ‘low correlation’), whereas others are inversely connected, meaning that they move in opposite ways to each other (called a ‘negative correlation’).

Mirroring the performance of a particular share index
There will always be times when one asset class outperforms another. Generally, cash and bonds provide stability while shares and property provide growth. Funds are either actively managed, where managers make decisions about the investments, or passively managed (typically called a ‘tracker’), where the fund is set up to mirror the performance of a particular share index rather than beat it.

Benefit from compound growth
Think long term. It is time in the market that counts – not timing the market. The longer you are invested in the market, the greater the likelihood of making up for any losses. What’s more, the sooner you start investing, the more you will benefit from compound growth.

Investing as tax-efficiently as possible
Different investments have different tax treatments. Tax is consequential to many wealth management decisions. Our understanding and experience can help you manage and protect your wealth, whatever form it takes. We can advise you about the tax treatment of your current investments, and of any investments you are considering, to ensure that you are investing tax-efficiently. It’s important to remember that your requirements are unique to you. What’s a good investment for one individual is not automatically a good investment choice for you, so don’t follow the latest investment trends unless they fit with your plan.

Past performance is not necessarily a guide to the future. The value of investments and the income from them can fall as well as rise as a result of market and currency fluctuations and you may not get back the amount originally invested. Tax assumptions are subject to statutory change and the value of tax relief (if any) will depend upon your individual circumstances.