The festive season is nearly upon us, but in the days between Christmas and New Year’s Day, you may find yourself at a loose end once the board games are packed away and the turkey is finally eaten.
This free time can be a great opportunity to tackle any financial tasks that you’ve been putting off so you can start the new year with peace of mind. Read on for the ten financial tasks that you should do over Christmas.
1. Make the most of your gifting allowance
At the time of year that we gather to exchange gifts with our loved ones, one important job you can do is to make sure you’ve used your Inheritance Tax gifting allowance.
If you don’t want to land your family with a large Inheritance Tax bill when you’re no longer around, gifting can be a good way to reduce it.
In the 2020/21 tax year, you have an annual exemption of £3,000. This means that you can give away £3,000 worth of gifts without their value being added to your estate. You can carry your exemption over from one year to another, but only for a maximum of two years.
If you want to reduce your Inheritance Tax bill and haven’t yet used your full exemption, now may be a good time to make a gift. If you didn’t use your full exemption in the 2019/20 tax year, your gift can be up to £6,000.
2. Sort out old pensions
If you’ve worked for several employers during your career, you might have several different pensions in place. They could all make a useful contribution to your retirement income so it’s definitely worth keeping on top of them.
According to a study by the Association of British Insurers, published in the Guardian, around £19.4 billion in more than 1.6 million pension funds has been ‘lost’.
If you find yourself with time on your hands this Christmas, you may benefit from checking the government’s free Pension Tracking Service to look up any pensions you might have forgotten about. Even if these old pension funds are not particularly large, it all adds up!
3. Create an ICE document
Creating an In Case of Emergency (ICE) document can be a good way to ensure that your family would be able to deal with your affairs in case something should happen to you.
This document should include:
- The names of your solicitor, accountant, and financial adviser
- Where you keep your important documents
- Where to find your insurance policies and will.
4. Give to charity
The coronavirus has badly affected many charities in 2020 as they have suffered the twin problem of a fall in contributions and an increase in the demand for their services.
If you’re a UK taxpayer and have been supporting a charity during the lockdown, make sure you apply Gift Aid to your contributions. By doing so, the charity can claim an extra 25% at no cost to you.
If you’re a higher or additional rate taxpayer, you can use your charity donations to apply for additional relief when you submit your Self-Assessment tax return.
5. Establish your Power of Attorney
As we’ve learned in the past few months, illness can strike at any time. When it does, it’s important to have a trusted person in place, ready to make decisions on your behalf if you can’t.
Putting a Lasting Power of Attorney (LPA) in place can help to give you some peace of mind to know that whatever the new year might hold, if you are unable to make decisions your interests will still be looked after.
There are two types of LPA:
- Property and Financial Affairs, which mainly deals with issues such as managing savings and investments, paying bills, selling property, and structuring your income
- Home and Welfare which deals with medical treatment, such as choosing a care home and structuring your diet.
6. Assess your savings and expenses
Many households had their finances negatively impacted this year due to the economic effects of Covid-19.
If you found that the pandemic has affected your finances, you may want to assess the state of your savings and household expenses to build more financial stability.
One of the best things you can do to enable you to absorb future financial shocks is to build an emergency fund. Experts typically recommend that you keep between three- to six- months’ worth of expenses in this fund, but you may want to save more if you work in a field which is particularly at risk.
Reviewing your household spending can be an opportunity to help you to cut out any unnecessary expenses. The money that you save can then be used to build up your emergency fund.
7. Review your estate planning
If you don’t already have one in place, now may be a good time to write a will. A 2019 study published in This Is Money found that 68% of Brits don’t have a will whilst 47% of people over the age of 55 have failed to arrange one.
Whilst many people assume that their family will automatically inherit their estate, if you were to pass away without a will, it could mean that your assets were left to a person not of your choosing.
If you already have a will, you can use this opportunity to review it, in case your circumstances or wishes have changed since it was written.
8. Make sure you have the right protection in place
Having the right sort of protection in place can give you invaluable peace of mind in case you’re unable to work due to illness or accident.
According to a study by the Financial Conduct Authority, around two-thirds (65%) of Brits have no life insurance or any protection cover in place. Without any protection, you could be worryingly exposed to financial shocks, such as the diagnosis of a serious illness or an accident that leaves you unable to work.
The pandemic has demonstrated how much impact a sudden shock can have on your finances, so if you haven’t reviewed your protection recently, now may be a good time to do so.
9. Get a State Pension forecast
Knowing how much pension you are set to receive can help you to plan your retirement.
To claim the full amount of State Pension, you’ll need to have paid 35 ‘qualifying years’ worth of National Insurance contributions. If there are gaps in your record, such as time spent out of work, you can apply for National Insurance credits to make up for them.
You can check the government website to find out the value of your State Pension entitlement.
10. Speak to a financial planner
If you want to be able to give yourself financial peace of mind in the new year, working with a financial planner can be invaluable. It gives you confidence and security to know that you’re achieving your goals.
According to a study by Royal London, clients who have regular contact with their planners feel more confident in their ability to manage their finances, as well as to absorb financial shocks.
With that in mind, you should get in touch with your planner in the new year so that you’re prepared for whatever the future may bring.
If you want to improve your financial wellbeing in time for the new year, we can help. Email info@blueskyifas.co.uk or call us on 01189 876655.