The arrival of lighter evenings signal the start of spring, bringing with them gardens filled with colour and longer days to spend doing the things you love. Traditionally a time to spring clean the home, many now take to their bank accounts and savings pots to spring clean their finances following the end of the tax year on 6 April 2024.
You might know where to start with de-cluttering your home, but if you’re wondering how to spring clean your finances, read on to discover five top tips.
1. Consider your ISA contributions
Tax-efficient ISAs could allow you to boost your wealth without any exposure to Capital Gains Tax (CGT). In addition to this, any amount you then take from your ISA is not normally free from Income Tax.
If you have a Stocks and Shares ISA, investing into it at spring time could help to boost your wealth’s tax-efficient growth potential, something This is Money highlighted in April 2024. It revealed that if someone invested their full ISA allowance in a global tracker on the first day of the tax year (6 April) in the 10 years leading up to April 2024, it could be worth £360,500.
If they had left it to the last day of the tax year, it would be worth just £322,500. Please note that the calculations were for illustrative purposes only and assumed that the maximum ISA allowance was invested in each tax year.
Always remember that past performance is no guarantee of future performance. In 2024/25, you can place a total of £20,000 into ISAs.
2. Review your pension’s performance
Even if your retirement is still some way off, reviewing your pension’s performance on a regular basis is a good habit to get into. As such, including it in your financial spring clean provides the ideal opportunity to make sure your pension’s on track to provide the retirement lifestyle you want.
If it’s not, you can then consider the best way to get it back on track. This might include, for example, consolidating any smaller pensions that you may have, as this may reduce charges and help to boost its long-term value.
Always remember that pension consolidation is complicated and could carry risks. Speak to a financial adviser before going ahead to ensure it’s right for you.
If you include your pension in your financial spring clean, you can also plan ahead to ensure you’re maximising your Annual Allowance. This is the amount of money that you can contribute to your pension that receives tax relief.
In 2024/25, the allowance is £60,000 or the amount you earn, whichever is the lower. As long as you remain within your Annual Allowance, every £100 you place into your pension will normally only cost you £80 if you’re a basic-rate taxpayer, or £60 if you’re a higher-rate taxpayer.
While additional-rate taxpayers may only pay £55, they may also be affected by the Tapered Annual Allowance, which might mean their allowance drops to just £10,000. If you’re a high earner, a financial adviser will be able to confirm whether you’re subject to the tapering rules.
3. Write or review your will
Not writing a will could have serious financial implications for your loved ones if the worst happens to you. For example, if you have a young family and have chosen not to get married, they may not receive your wealth if you do not have a will, which could put their financial security at risk.
Having a will provides peace of mind that your wealth will go to the people you want it to in a timely fashion. If you do have a will, it’s important to review it regularly to ensure it’s in line with your wishes.
This is especially true if you have recently had a significant life event, such as getting married or divorced, or having a child or grandchild.
4. Ensure your wealth is protected
Life doesn’t always go to plan, and when it doesn’t, it might result in you having to reduce your standard of living to make ends meet. This might happen, for example, if you’re unable to work due to a serious illness or accident.
Financial protection could help to provide you with a ‘safety net’ if the unexpected – and unwanted – happens, so that you can maintain your lifestyle. If you do have financial protection, however, it’s important to review it as part of your financial spring clean, to ensure it still meets your needs.
As with writing a will, this is particularly important if there has been a major change in your life.
5. Create a Lasting Power of Attorney (if you haven’t already)
A Lasting Power of Attorney (LPA) allows you to future-proof your wealth, as it means that someone you trust can look after your wealth if you lose ‘mental capacity’ due to illness or an accident.
The person you nominate can pay your bills and look after your financial interests up until the time you’re able to deal with them again.
Please remember that if you lose mental capacity and don’t already have an LPA in place, it’s normally too late to then create and activate one.
Get in touch
According to the International Longevity Centre UK, those who work with a financial adviser are on average £40,000 better off. If you’re not already working with an adviser, doing so while giving your wealth a spring clean could help to boost its long-term value and ensure it’s as tax-efficient as possible.
This could provide peace of mind that your wealth is in safe hands, while you get on with the business of enjoying life. If you would like to know how we may be able to help you, please contact us on 01527 577775 or speak to one of our advisers, as we’d be happy to help.
Friday 26 April 2024