Seven new (tax) year resolutions

While 6 April may lack the excitement of massive firework displays and nation-wide countdowns, the start of the new tax year is still a good time to reflect on past financial achievements and mistakes.

We explore seven financial resolutions which could help you get more out of your investments over the next 12 months.

1. Invest into your ISA monthly

Rather than investing a lump sum of money here and there, investors could reap greater rewards from putting money into their ISAs little and often. Not only should this smooth volatility (which means it is best-suited for those buying into higher-risk investment), your portfolio should also reap the benefits of pound cost averaging. Essentially, this is when investors automatically buy more shares when prices fall and fewer when prices rise, as the amount paid in each month remains the same while investment costs fluctuate.

2. Top up your pension

Pensions are now more flexible than they have ever been and remain extremely tax efficient. For example, a contribution of £500 automatically becomes £625. Higher rate tax payers can then claim back another 20% through their tax return. This means an investment of £625 effectively costs only £375. It is also now possible to pass on the pension as an inheritance in a cost-efficient manner. If structured correctly, the pension pot can now be the ultimate long-term savings vehicle for multiple generations.

3. Increase your monthly contributions

If you already dripfeed into your ISA or pension, this new tax year might be a good time to increase your monthly contributions. It doesn’t have to be by much – even sacrificing your morning latte and investing that money over the course of a year can make a difference. It is easy to underestimate the power of compounding and, of course, its effectiveness increases the sooner you start investing. One good way to increase your contribution is to increase your savings alongside any pay-rise you may get; after all, what you haven’t had, you won’t miss.

4. Take advantage of marriage vows

Marrying or entering a civil partnership with the person of your dreams doesn’t just mean a bright and beautiful future together: it also has a financial benefit – the marriage allowance. Lower-earners can pass on any unused personal allowance (£12,500 in the 2019/20 tax year) to their partner, providing the partner is a basic-rate tax payer (their salary must be between £12,500 and £50,000 this tax year – or less than £43,430 in Scotland where the bands are slightly different). Another advantage of being married is that income-producing assets can be passed between spouses without triggering a tax bill. The balance can be held by the spouse paying the lower rate of tax, to reduce the tax that may be payable.

5. Use Capital Gains Tax allowances

If you have investments held outside of a tax wrapper you can take some gains each before being subject to capital gains tax. It’s therefore worth planning when you take these gains in order to stay below the threshold in any one year. Your spouse also has an allowance, so you can share assets and again, both take advantage.

6. Don’t leave your tax return until the last minute

The deadline to submit your tax returns by post is 31 October and the deadline for online submissions is is 31 January, each year, every year. That’s six to nine months to get it done. And yet, all too often we procrastinate and leave doing it until the last minute. Not only does getting your tax return done early make the experience less stressful and allow you to budget accordingly, it is also beneficial to those who invest in Venture Capital Trusts or VCTs. This is because you will receive your 30% income tax rebate earlier which, in turn, means you can reinvest this cash elsewhere. As the saying goes, the best time to invest your money is now!

7. Research your funds carefully

Finally, it’s important that you pick the right fund to suit your risk appetite, your favoured investing style and where you have the most conviction. With more than 3,000 funds out there, it is no mean feat picking the right ones for your portfolio, and this is certainly not a task that should be left until the end of the tax year! Of course, here at FundCalibre we have our own Elite Rating system, which combines both quantitative and qualitative research. We won’t rate any more than 10% of funds in any sector and we don’t run a tiered ratings system – a fund is either Elite or it isn’t – making it as simple as possible for investors to make the right decision.