For many people, getting your finances in check is a New Year’s resolution that has foundered around this point as summer starts and there are better things to do than wade through old bank statements.
But 2020 is no ordinary year. For many of us, the coronavirus crisis has changed the way we work, how much we earn and the value of our financial assets. This has big implications for how much tax we owe and what allowances and benefits we’re entitled to use. With that in mind, here are five ideas that could save you money this year:
Do Your Tax Return Early
A lot of self-employed people leave filing their tax until January 31, the last day that you can submit your return online – this is 10 months after the new tax year has started. This could be the year to change that habit and file as soon as you can. Kay Ingram, public policy director of financial planners LEBC, says there are some benefits to getting your tax returns done:
- You know what you owe months in advance and that makes budgeting easier
- New rules mean you don’t have to pay the balance until next year
You also may have to pay less than you think - which will be a relief - or you may even be due a refund, especially if your work ground to a halt in February and March. “A lot of people will have tax codes that don’t reflect their current reality,” Ingram says.
Check if You’re Due an IHT Refund
Inheritance tax is one of the least popular taxes, but there are things you can do to mitigate its effect. As a person’s estate is valued at death for IHT purposes, their investments may be worth less when executors come to sell them. This could be the case if the person died at the start of this year when stock markets hit record highs, but their equities were sold in the March sell-off. In this scenario, you can claim a refund for the difference between what the shares or funds were valued at and what they were sold for.
What some people also don’t realise is that these equity investments don’t need to be sold - they can be inherited instead. One way of minimising tax owed is to cherry pick between the best and worst performing assets, says Sean McCann, chartered financial planner at NFU Mutual – keep the ones that have increased the most and sell the ones that have fallen furthest. If you’re sitting on an investment loss on a fund or share, he adds, you could always gift it now – the value is frozen when the asset is gifted, so any future gains will be IHT-free.
Look at Your Allowances and Benefits
People who have never claimed unemployment benefits before are now finding they have to rely on the state for help. This is what the system is designed for, but there can be a psychological barrier to overcome first. “Middle class people are terrible at assuming that benefits are not for them,” says Ingram.
If you’re claiming Universal Credit (formerly known as Jobseeker’s Allowance), some people fall foul of savings limits – if you have £16,000 stashed away you won’t be entitled to anything. But tax owed can be offset against this limit, another good reason to do your tax return early.
If you’ve taken a pay cut to keep your job, you may have dropped into a lower tax bracket. And for those who find themselves as basic rate taxpayers, this opens up child benefit and marriage allowances that you couldn’t claim before.
Don’t Neglect Your Pension
Many savers with defined contribution pensions will be wary about looking at their statements this year. But pensions often contain bonds as well as equities, so – combined with the April rebound – the damage might not be as bad as you think.
Higher-rate taxpayers can still claim 40% relief on their pension contributions, but how long will this last? The perk has been up for grabs for years, and the UK Government may need to raise taxes or cut allowances to pay for the massive rise in coronavirus-related spending. Ingram argues that, if you’re a higher rate taxpayer who still has a job, this could be a good time to top up your pension contributions while you still get the full relief - currently you can save up to £40,000 a year into a pension.
Tim Snaith, partner at Winckworth Sherwood, says it makes sense to check whether your retirement plans are still on track. He also suggests checking the Death Benefit nomination form to see who stands to benefit from your pension pot when you die. With that in mind, he also recommends checking your work life insurance to see who’ve you’ve nominated to receive death benefits – often a multiple of an annual salary – and to check your will while you’re thinking about these worst-case scenarios.
Build a Buffer, Shop Around, Claim Refunds
Myron Jobson, personal finance campaigner at interactive investor, says the current crisis has thrown a harsh light on the inadequacy of some people’s “rainy day” funds”.
“Unfortunately, it is not raining but pouring from a financial standpoint for many people amid the coronavirus pandemic - particularly those who have been made jobless, people facing reduced working hours and those who cannot work due to illness,” he says.
He says the old rule of thumb of having three months salary tucked away may not apply, and six months might be more appropriate now.
For those looking to cut down their monthly expenses, he suggests shopping around, for example finding a better energy deal, rather than relying on credit cards to plug the gap.
Insurance is one area where people may be paying too much: the Financial Conduct Authority has recently advised insurance companies to offer their customers refunds, cheaper products or payment holidays. You may decide you no longer need your car to commute, for example, but paid in full for a comprehensive car insurance policy, which you can now claim back.
