January investment ‘detox’ at the top of your New Year financial resolutions list

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Julia Grimes
Published: 18 Dec 2017 Updated: 18 Dec 2017

Once Christmas is done and dusted, attention will no doubt turn to the investment outlook for 2018 and, of course, the topic of New Year Resolutions - those personal goals we like to set ourselves such as getting back into shape after the indulgences of the festive season.

With that in mind, Jason Hollands, Managing Director of Tilney, suggests eight New Year Resolutions savers and investors, anxious to get their finances in shape in 2018, might consider. And the good news is that while many of us break our Resolutions part-way through the year, most of these only need to be adhered to until the start of April:

1. File your 2016/17 tax return online by 31 January
“Few people enjoy filling out forms, not least lengthy ones for the taxman, so it is human nature to leave completing an annual tax return until the eleventh hour. The deadline for submitting paper-based returns for the 2016/17 tax year has already passed but returns can be submitted online until 31 January 2018. It is important not to miss this, or you will face a fine, starting at £100 for being just one day late, and thereafter a daily penalty of £10 for up to 90 days (capped at £900). If you delay by 6 months, you will also face all of these penalties plus the higher figure of either a further £300 or 5% of any tax due.

“To file a self-assessment tax return online you will need a HMRC account and this can take a week because you need to be sent an ‘activation code’ in the post – so act now if you do not have one.

“Furthermore, completing a tax return involves preparation in terms of gathering together relevant documents such as pay slips and records of any bank interest or dividends received.

2. Review and detox your existing portfolio before investing in a new ISA or pension
“One of the biggest mistakes investors make is getting caught up in the end of tax year frenzy and choosing investments on an ad hoc basis. It is so easy to get distracted by whatever funds are flavour of the month without first considering how these might fit alongside an existing portfolio. It is however vital to understand your overall goals, risk appetite and strategy as a precursor to investing any new money into the markets.

“Existing portfolios also drift over time as different investments held don’t all move in tandem, which can lead to a situation where the risk profile of a portfolio mutates into something very different from what may have originally been intended. And of course, individual investments that may have been worth backing in the past might need to be reassessed from time to time.

“For these reasons, it is vital to review your portfolio and potentially give it the equivalent of a ‘detox’ at least once a year. If you are not already doing so this a is a really good time to seriously consider whether you should entrust your investments to a private client investment manager or adviser to select your holdings, monitor and adjust them throughout the year to make sure they remain suitable.

“For those who have the time and inclination to manage their own portfolios, a January portfolio ‘detox’ means weeding out individual investments they have lost faith in but also rebalancing their portfolio so that the split between different asset classes and markets fits their goals, risk profile and where they believe the greatest opportunities are for the year ahead. Given that many people make new investments in February and March in the run-up to the tax year end, it is a good discipline to review what you already hold ahead of this as the process should provide an insight into the asset classes and markets to focus on when making new investments.

3. Consider consolidating your investments for greater control
“One of the things that can frustrate an investor’s ability to effectively manage and review their investments is when they are scattered around in different accounts. This is especially true of pensions, because people can end up accumulating several as they change jobs during their working lives. These days however, the ISAs and Self-Invested Personal Pensions offer an incredible amount of choice within a single account. Consolidating your investments might therefore enable you to have greater control over your investment strategy, without sacrificing choice. However, before consolidating your pensions, it is important to check with each pension provider that there won’t be any excessive penalties or loss of valuable benefits and this is something a financial planner will be able to help with.

4. Review your pensions…
“There has been a considerable amount of change to pensions in recent times, with greater flexibility in how benefits are taken and pensions have also become a very tax efficient way to pass wealth on the next generation. Yet many old-pension contracts may not be able to facilitate these features and it is therefore vital to review existing plans if you have not done so recently.

“Furthermore, reductions in the lifetime allowance to £1.03m from 6 April 2018, from £1.8 million in 2011/12, along with the recent introduction of the tapered annual allowance for high earners may require a change in approach to contributions, including potentially taking out fixed protection or individual protection to secure your pension against a higher lifetime allowance.

5. ….And your Wills
“Many people don’t like thinking about the inevitability of their death and it is estimated that around two thirds of adults have not made a Will. Dying intestate can leave your loved ones and dependants in a terrible financial state.

“Yet even if you have written a Will, it is important to review this periodically to make sure it is up-to-date with current rules on inheritance tax, your circumstances and wishes. A sensible timescale is to review your Will every five years but to act sooner if you have experienced any major changes in your life recently such as divorce, marriage, the birth of a child of death of a named executor in your Will.

6. Maximise pensions – while you can
“Pension contributions have long offered some of the most considerable tax relief for those subject to the higher rates of income tax, who can get effective relief at their marginal rate meaning a £10,000 gross contribution from a 40% tax payer has a net cost of just £6,000.

“Yet the long term future of these reliefs, which represent a considerable cost to the taxman’s coffers, cannot be guaranteed. They have already been reduced under both Coalition and Conservative governments and would seem an easy target for a potential Corbyn-led Labour administration.

“Those able to benefit from higher rate relief on pension contributions should seriously consider taking advantage of the current generous regime while it remains available, including potentially mopping up unused allowances from the previous three years via “carry forward”.

7. Utilise your ‘use or lose it’ ISA allowance
“ISAs may not have the upfront tax reliefs of pensions, but they do have considerable flexibility as you can withdraw your investments at any time without a potential tax hit on the way out. ISAs have also seen some significant improvements over the last few years, with the allowances jumping to a thumping £20,000 this tax year with greater flexibility over what can be held within them and the ability for a spouse or civil partner to inherit the allowance upon death of their partners.

“While most people may not have such large amounts of spare cash to invest each year, consider using existing taxable investments to fund an ISA.

8. Make use of your capital gains allowances and utilise Bed and ISA
“If you own investments outside of tax free-wrappers (ISAs and pensions), then you can crystallise returns this tax year of up to £11,300 without incurring capital gains tax. Many investors forget to utilise this potentially valuable allowance, and don’t forget also that married couples and civil partners can transfer investments to each other without any tax consequences, meaning two sets of capital gains allowances could be utilised.

“It might make sense crystallising gains and using the proceeds to fund ISA or pension contributions – a process known as Bed and ISA or Bed and Pension, so that over time as much of your investments as possible are sheltered in tax-efficient accounts. This is especially important for those who are likely to be negatively impacted by the reduction in the dividend tax allowance from £5,000 to £2,000 in the 2018/19 tax year.”


Important Information:

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance.

Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Please note we do not provide tax advice.

SIPPs are not suitable for everyone. If you don’t want to invest across different asset classes or don’t think you will make use of the investment choices that SIPPs give you then a SIPP might not be right for you. Self-directed investors should regularly review their SIPP portfolio, or seek professional advice, to ensure that the underlying investments remain in line with their pension objectives.


This release was previously published on Tilney Smith & Williamson prior to the launch of Evelyn Partners.