New Year top financial tips
Many people plan to overhaul their finances in the New Year and independent financial advisers, Killik & Co, has produced a list of top tips to help with sorting out your money.
Malcolm Cuthbert, managing director, financial planning division at Killik & Co, says: “Everyone should sort out their finances at least once a year and the New Year is a perfect opportunity to do so. We urge investors to also look at their savings and make sure they are maximising their existing tax relief whether it’s investments within an ISA/PEP wrapper, their pension pot and retirement planning, or even looking at the new CGT and inheritance tax legislation likely to come in next year.”
Tip 1 – Give your pension a boost
If you are over 50 and a higher rate tax payer, consider using other assets including PEPs/ISAs as well as cash to give your pension a 114% boost – without any investment risk. Here’s how it works: A 50 year old individual puts £7,800 into his pension. He receives £2,200 tax relief immediately and can claim back £1,800 through his tax return, so £6,000 net results in £10,000 in his pension. He can then take 25% tax free cash (or £2,500), reducing his net cash to £3,500 for £7,500 in his pension pot. 114% increase.
Tip 2 – Make the most of excess savings
People are now liable to pay tax on amounts in their pension fund that exceed the ‘lifetime limit’ of £1.5 million. People whose savings have reached or exceeded this limit should consider ways to keep saving efficiently. An offshore bond might be one way to keep saving tax efficiently if you exceed the lifetime allowance.
Tip 3 – Make the most of ISAs
Make sure you and your partner both contribute £7,000 to take advantage of the ISA allowance for the current tax year, before 6th April 2008. Over a period of 25 years, assuming a compound interest of 8% pa and assuming a contribution rate of £14,000 pa (£7,000 each), then this could grow to in excess of £1 million in a tax advantaged wrapper.
Tip 4 – Renew your will to make sure it is IHT efficient
Chancellor Alistair Darling proposed in his pre-Budget Report that a married couple (or civil partner) will automatically be able to use both ‘nil rate bands’ without the need for any estate planning. This means that anyone who had the forethought to put a will in place which is IHT-friendly should review it without delay to make sure it is still appropriate. Check this out with a member of The Society of Trust and Estate Practitioners (STEP).
Tip 5 – Shop around for the best annuity
If you’re at the stage of retiring, shop around for the best annuity rates. Don’t necessarily put all your eggs in one basket by giving your entire pension to the one provider who offers the best rate. If your fund is large enough, consider splitting it between two or three providers and also consider buying different types of annuity- level – RPI-linked, equity-linked etc – so that you have some guarantees and some chance of your retirement annuity increasing.