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.

Safeguarding your income and family wealth

What would happen to your family if something were to happen to you or your partner? We all want to protect what’s important to us. And while most people recognise the importance of taking out insurance to cover valuable possessions such as their homes and cars – even pets – far fewer have sufficient protection in place to protect themselves or their families should something unexpected happen to stop them earning income.

Financial protection

Could you and your loved ones cope financially if you had an accident or fell ill and couldn’t work? According to figures from the Office of National Statistics in 2010 [1], 20 per cent of British men and 10 per cent of British women died before their 60th birthdays. Thousands of Britons under the age of 60 are also diagnosed with a critical illness every year and even more are involved in accidents that affect their ability to work.

Many of us expect the Government – or our employers, if applicable – to step in should we become unable to work. However, even if you are employed full-time, your employer will generally stop paying your full salary after a period of time and the State benefits you qualify for can offer only limited help – particularly if you have a mortgage. While most major life events can’t be foreseen, they can be planned for, and here we explain some of the different types of protection available that could help support you or your family in times of crisis.

Life insurance

If the worst should happen, life insurance will provide your family with a guaranteed cash lump sum or income to help them cope financially in the event of your premature death.

You can choose between cover that pays out the same amount no matter when you die, cover that increases in line with inflation, or perhaps cover that’s related to your mortgage, decreasing in line with any outstanding balance. It is worth checking whether your employment contract includes a death in service benefit that will go to your family should you die.

Critical illness insurance

More than eight in ten cancer patients find themselves in a difficult financial position, according to charity Macmillan Cancer Support [2], who estimate that cancer costs the average patient £570 a month due to hospital travel and loss of earnings.

Critical illness cover can offer a financial lifeline to people who develop a serious medical condition. It pays out a tax-free lump sum if the policyholder is diagnosed with a life-threatening specified illness covered by their plan – and you can use any payment you receive any way you want.

While most of us tend to worry about the most common serious illnesses such as heart attack, cancer and multiple sclerosis, critical illness cover can also protect you against a much wider range of specified conditions.

It also makes sense for individuals with no dependants to consider critical illness cover to help maintain their current standard of living.

Income protection insurance

Income protection insurance is designed to help cover your outgoings while you are unable to work – right up to your chosen retirement age.

It essentially pays a selected percentage of your monthly income. Depending on the provider, you can choose to receive up to 75 per cent of your gross salary, but again, you will pay less for cover if you think you can survive on a lower percentage.

Payments usually start after a specified period, for example, 4 or 13 weeks. Many people will defer the start of payments until after any sick pay they are entitled to with their company has finished – most insurers would reduce a claim by any sick pay you are entitled to anyway.
You could even choose to defer the benefit payments for up to two years, perhaps based on having other plans that could support in the interim, such as critical illness cover.

Ensure that you – and your family – are fully protected

Life insurance, critical illness insurance and income protection insurance are designed to protect you in different financial and emotional situations. For many, having a combination of the three is the best way to ensure that you – and your family – are fully protected should the unexpected happen. If you have no dependants, a combination of critical illness cover and income protection may be more appropriate. To review your particular protection requirements, please contact us for more information.

[1] Office of National Statistics: Mortality in the United Kingdom 2010, released 20 January 2012
[2] Macmillan Cancer Support – Cancer’s Hidden Price Tag 2013 report

‘Save smart’

We’re becoming increasingly good when it comes to cost cutting, according to the latest findings of an annual online survey from long-term savings and investment specialist Standard Life by YouGov PLC.

Today, more than 9 out of 10 of us (92%) actively manage our costs to make our money go further. There has been a strong growth in the number of people reviewing phone tariffs, internet tariffs and utility providers, and these days more people are looking online to find the best deals.

Controlling costs
More young people in particular have taken steps to actively control their costs in the past year. 42% more under-25s are regularly reviewing their phone and internet tariffs to save money, and 33% more are making sure they pay off their credit cards each month.
Meanwhile, 21% more people aged 55 and over report that they set themselves a weekly or monthly budget. However, as a nation, the number of people budgeting has declined by 5% this year.

Potential for higher returns
While most Britons are busy cost-cutting – buying things second hand, reviewing insurance premiums, budgeting and ensuring they get the best deals all round – those who are ‘saving smart’ by using an Individual Savings Account (ISA), either a Cash ISA (41%) or a Stocks & Shares ISA (11%), remain in the minority. Even fewer say they plan to actively save in a Cash ISA (38%) or a Stocks & Shares ISA (9%) this tax year.

From July this year, you will be able to save up to £15,000 in the New ISA, and you will also be able to transfer ISA savings freely between cash or stocks and shares. Therefore, rather than putting all of our money away in a savings account, you now have a chance to save smart with even more of your money. The higher ISA limit also increases the opportunity you have to invest in stocks and shares tax-efficiently, with the potential for higher returns than if you keep everything in cash.

Helping you ‘save smart’:
1. Use as much of your ISA allowance as possible each tax year. Between 6 April and 1 July, there are temporary limits of £5,940 for Cash and £11,880 for Stocks & Shares ISAs. After this, the new ISA (NISA) rules apply and you will have the chance of greater tax-efficient growth over the longer term by being able to invest £15,000 each tax year.

2. Always hold some money in cash to cover your outgoings (such as your rent, mortgage, food and utilities) in case of emergencies, before looking to invest for the longer term. But make sure you are getting the best interest rate on your cash by looking at both savings accounts and Cash ISAs.

3. If you are dipping your toe in the stock market for the first time, you should obtain professional advice when it comes to choosing funds for a Stocks & Shares ISA.

4. The important thing is to think about how much risk you are willing to take. You may also want to consider ‘risk-managed funds’, which have been growing in popularity with some investors. They provide you with a diversified portfolio that is managed for you, with the aim of providing the best possible return, in line with your chosen level of risk.

Tax rules and legislation can change and the information given here is based on our understanding of law and current HM Revenue & Customs practice. The value of an investment can fall or rise, so you may not receive back the amount you invested.

All figures, unless otherwise stated, are from YouGov Plc. Total sample size for the 2014 survey was 2,591 adults, 2009 adults in 2013 and 2,004 adults in 2012. Fieldwork was undertaken between 5–7 March 2014, 25–28 January 2013 and 23–27 February 2012. The surveys were carried out online. The figures have been weighted and are representative of all GB adults (aged 18+)