How to optimise your finances with a quarter of the tax year to go

The new tax year starts in April - here's a checklist to tick off before then

With a quarter of the tax year to go, many will likely be wondering what they can do to get their finances in the best place possible prior to the end of March.

The new tax year starts in April, and it makes sense to try and sort your money before then, so that your profiting from savings and investments in the most tax-efficient way possible.

To help optimise your circumstances, here is a list of things to check off, according to Netwealth founder Charlotte Ransom.

Here are her top tips:

  • Maximise your tax-free allowances: Isas and pensions allow you to benefit from tax-free growth over time – with maximum individual allowances each year of £20,000 and £60,000 respectively per tax year.

    You should use as much of these allowances as you can afford. For pensions you may also be able to boost your pot by using up to three years of previously unused allowances. For Isas, you can benefit across the family with, for example, £58,000 a year able to be sheltered from the taxman for a family consisting of two adults and two children.
  • Ensure you have diverse investments: It’s impossible to predict which assets will perform best from year to year. For example, among a list of 15 major asset classes, it is commodities, REITs (property trusts), developed world equities, gold, emerging market equities and high yield bonds that have all topped the table in recent years for sterling-based investors – and in other years have often skirted the bottom of the table.

    To ensure you can target growth opportunities and also protect against potential losses, it’s crucial to have an efficiently invested mix of assets in your investment portfolio, whether that’s in your pension, Isa or taxable portfolios.
  • Minimise your fees: If there is one thing you should do over the next few months – and a habit to embed for the years to come – you should scrutinise the fees you are paying on any investments. If the all-in charges are too high, you should take your business elsewhere.

    What’s too high? As a rule of thumb, your total investment costs shouldn’t come in at more than 1 per cent each year. If you are also paying for financial advice, that might rise to a total all-in cost of 1.4 per cent. If you read the finer print, you may well find you are paying 1 per cent per annum more than that, or even double in many cases. I have said before that the impact of what seems like a minor difference is actually hugely costly – overpay by 1 per cent per annum in fees, and you will be giving away 14 per cent of your capital unnecessarily over 10 years. All else being equal, high fees are the single greatest threat to the value of an investment or pension portfolio – and you shouldn’t hesitate to act to rectify the situation. Investment is important to help combat the long-term effects of even subdued inflation; just make sure you are not being punitively charged for doing so.
  • Use your capital gains tax allowance: When we make a profit from selling an investment, capital gains tax may be due. The individual annual exemption amount was reduced from £12,300 to £6,000 in 2023 and will be cut further to £3,000 from April 2024 (double that with a partner’s allowance). So if it is not possible to shelter potential gains in a tax wrapper such as an Isa or pension, you should act before the new tax year starts in April to benefit from a higher allowance. 
  • Helping the next generation: If you can afford to pass on some of your wealth – to help a child or grandchild – you should make use of the rules which can help you. Each year we are allowed to gift up to £3,000 without inheritance tax (IHT) applying, and if you didn’t use your allowance last year you can bring forward an extra £3,000, and double that amount for a couple.

    You can also give away larger sums – and if you live for seven years after you make the gift, there is no IHT to pay, with a downwards sliding tax scale over the course of those seven years.
  • Consider financial planning advice or guidance: Studies by the International Longevity Centre have found that those who take regulated financial advice are measurably better off a few years later. However, whether or not to take advice will often depend on your age and circumstances.

    Financial planning advice can be very worthwhile if you are building up to retirement, you have an inheritance or are getting divorced – these are circumstances where you will want to establish a proper plan. There is real value, for instance, if you aim to retire in 10-15 years’ time and, after taking advice, any subsequent action you take fuels a positive accumulative effect. Alternatively, not taking advice may mean you make mistakes you didn’t even know you should have avoided.

Charlotte Ransom has 30 years’ experience working in financial services and wealth planning, including 10 years as a partner at Goldman Sachs. She is the founder of Netwealth, which specialises in low-cost investing and financial planning

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