With a quarter of the calendar year gone already, most New Year’s resolutions will by now be distant memories. But when it comes to personal finance, getting into good habits like reviewing investment portfolios, regular saving and pension planning can make a big difference.
AJ Bell has offered five tips to help investors take practical steps to maximise available tax reliefs, cut costs and improve overall investment performance.
Leaving ISA and SIPP contributions to the end of the tax year is something many investors do. However, choosing to invest more at the start of the new tax year could add thousands of pounds to your savings or pension pot.
For example, a person who invests their £11,520 ISA allowance at the beginning of each tax year into a Sippdeal ISA for the next 15 years could accrue £284,598. However, if the same person contributed the same amount over the same period but at the end of the tax year, they might only have £268,093. Both examples assume 6% investment growth and a 1% annual investment charge.
“Traditionally the run-up to the tax year end is always busy with people eager to take advantage of their tax efficient allowances and this year has been no different,” says Billy Mackay, Marketing Director of AJ Bell.
“Shifting the focus of the timing of your contributions and subscriptions to the start of a tax year can lead to significant financial rewards. This will involve a change in mindset for many but by positioning themselves to fund SIPP and ISAs early in the tax year, investors can reap the benefits of making early payments.”
Reviewing your portfolio can cut costs and raise returns, so it is worth periodically taking stock of your investment strategy and holdings. Fine-tuning your portfolio could yield real benefits – research consistently shows that the majority of investment returns come from asset allocation.
Long-time D.I.Y investor and Sippdeal client Imad Kabbani says: “I check my stocks daily but I tend to review my holdings on a half-yearly basis. I take a medium to long-term view and I never invest too much in one particular stock or sector.”
Make use of this tax-effective means of retirement planning
Despite the new tax year bringing a reduction in pension tax relief for high earners, top rate taxpayers can still benefit from generous tax relief of 45% through a SIPP.
“SIPPs remain one of the most tax-effective means of planning for retirement,” says Mackay.
“The basic tax advantages of pension saving are valued by many investors – every £1 saved into a pension costs a basic rate taxpayer only 80p and the net cost after all tax relief to a higher rate taxpayer is just 60p. Such government generosity is rare in this day and age and savers should make the most of it.”
Keep your tax-free allowance while saving for a child
In the Budget, the Chancellor spelled out plans to allow six million savers with so-called ‘zombie’ Child Trust Funds (CTF) to transfer their money into Junior ISAs (JISA). By using a JISA, adults can save for a child and hopefully deliver stronger returns on their investment without eating into their own tax-free savings allowance. Figures from AJ Bell’s Sippdeal platform show that making an annual payment of £3,720 into a JISA from a child’s birth date until they are 18 could deliver a fund of more than £109,174 (assuming 6% annual growth and 1% annual charges).
Mackay says: “Encouraging more people to save more for their children will provide a head start in funding the costs of a university education or a deposit on their first home, and will hopefully impress on them the importance of building savings rather than debt.”
You might also want to consider consolidating your savings and investments with a single online provider to make monitoring your portfolio and managing your investments easier.
Charles Galbraith, Managing Director of AJ Bell’s low-cost investment platform Sippdeal, says: “Holding investments in different places makes it difficult to keep track and monitor overall performance and asset allocation. Online platforms can offer the type of functionality that investors have already embraced through their online banking. Assessing investments when they are all held in one place is much less of a challenge.
“Not only will there be greater administrative ease, but consolidating investments can also reduce costs if you transfer to a more competitive provider.”