The new year is a time to look to the future and chances are, you will be hoping for better times ahead in 2021.
Your financial situation may have been shaken during the pandemic – you may have seen your investment income grind to a halt, faced a salary cut, had your hours reduced or lost your job entirely.
Here are some resolutions that could help to get your finances on track for a more prosperous year.
Reconsider your spending
If you don’t already have a pot of accessible cash savings, now is the time to start building one up. Consider where you may be able to cut your spending by looking through your bank statements.
You could also use an online budget planner, such as the one from the Money Advice Service.
Of course, how much you want to hold in cash savings depends on your personal circumstances and preferences, but generally it’s considered wise to have around six months’ expenditure set aside. Set up a monthly standing order to automatically shift a portion of your salary into a savings account if you want to increase the amount you have.
Establish a financial plan
The new year is a good time to reconsider your financial goals – what you would like to achieve over the short, medium and longterm.
However, distinguishing between these can be tricky, and it can be difficult to know if you are allocating your money towards these in the best way.
A consultation with a professional financial planner can help you to build a comprehensive plan, and provide objective, clear advice whatever is going on in your life, in the investment markets and in the wider economy. This way, you’ll know exactly what you need to do to achieve your life goals, and be safe in the knowledge that
your financial planner is working towards getting you there.
Review your investments
If you have an investment portfolio this should be in line with your risk-appetite at the time you set it up. However, you may have reconsidered this over the past year, or want to double check that you are still comfortable with the investments you hold.
Over time, the proportions of your portfolio held in different asset classes could change significantly as their values fluctuate. One sector might enjoy sustained gains, say, while another falls in value.
A wealth manager can ensure that your portfolio is carefully constructed, with a diversified mix of investments, and give you the reassurance that steps will be taken to rebalance your portfolio when necessary.
Boost your pension
There is speculation that the amount of pensions tax relief you can benefit from could be reduced over coming years.
Currently, you can pay into your pension up to the higher of £3,600 or 100% of your earnings each year and benefit from tax relief, subject to an overall limit of £40,000 (known as the annual allowance). An individual’s contributions to a personal pension are ‘grossed up’, which means the government adds basic rate tax relief. For example, if you pay £80 into your personal pension, the government tops this up to £100. You can claim an additional 20% or 25% if you’re a higher or additional-rate taxpayer.
However, beware that the amount you can pay into a pension is reduced for higher earners by £1 for every £2 above the ‘adjusted’ income limit of £240,000 and ‘threshold’ income of £200,000, down to a minimum annual allowance of £4,000. This can be a complex calculation, so seeking advice can help you avoid paying a tax charge.
You may also be able to ‘carry forward’ unused pension annual allowance from previous tax years, to increase the amount saved into a pension this tax year without suffering a tax charge.
Maximise tax allowances
You have a wide range of tax allowances to make use of each year. Towards the end of the tax year (which ends on 5th April) is a good time to check that you have taken advantage of them, and make use of any remaining allowances before they are lost. For example, there’s your ISA allowance, which stands at £20,000 in
the 2020/21 tax year, and your capital gains tax (CGT) exemption which lets you realise gains up to £12,300 without paying CGT.
You can also save up to £9,000 per year for your children’s future in a junior ISA. There may be other opportunities to maximise your allowances, too, which an adviser can help with. For example, you may have unused income tax personal allowance, which could be used by taking a taxable pension withdrawal or it could be transferred to a spouse or civil partner via the marriage allowance.
Make a will
Making a will is one of the most important things you can do. It ensures that your assets go to who you want after your death, and that your wishes are carried out. If you have already made a will, consider whether it needs updating – for example, if your personal circumstances have changed.
Seek legal advice to ensure your wishes are met and your wills are tax-efficient and set up in the most suitable way for you. For example, you may want to set up mirror wills with your spouse, or civil partner leaving your estate to the other in the event of death, but beware that mirror wills will not be appropriate for all couples.
The value of investments and any income from them can fall and you may get back less than you invested.
Past performance is not a guide to future performance.
Opinions expressed in this document are not necessarily the views held throughout Brewin Dolphin Ltd.
This information is for illustrative purposes only and is not intended as investment advice.
No investment is suitable in all cases and if you have any doubts as to an investment’s suitability then you should contact us.
Please note that the information in this article is for information purposes only and does not constitute advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change.
Tax treatment depends on your individual circumstances; therefore, you should not rely on this information without seeking professional advice from a qualified tax adviser.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
Brewin Dolphin Limited is a member of the London Stock Exchange, and is authorised and regulated by the Financial Conduct Authority (Financial Services Register reference number: 124444). Registered office: 12 Smithfield Street, London, EC1A 9BD.
Registered in England and Wales – company number: 2135876. VAT number: GB 690 8994 69