Pay close attention to clients' finances so they do not miss out

This article is part of
Guide to year-end tax planning

Pay close attention to clients' finances so they do not miss out

Good financial planning is the foundation of effective money management at any time.

But it comes sharply into focus at this time of the year, as the tax year ends and the Budget gets closer.

It is an ideal time for clients to take stock of their finances, including making effective use of allowances while they still have the chance. 

“Paying tax unnecessarily is galling,” says Becky O’Connor, personal finance specialist at Royal London.

Key Points

  • March is a good time to check one’s use of tax allowances
  • There are certain smaller allowances one may miss
  • Rumours abound over tax changes in the Budget

“But savers and investors can end up overpaying tax if they aren’t aware of allowances available on income tax and capital gains tax.

“It’s possible for people to end up overpaying thousands of pounds in tax in a year if they don’t keep an eye on what they are eligible for, particularly as personal financial circumstances, like salaries, savings and investment balances, change over time.

“It’s easy to miss the smaller, lesser-known allowances too, such as marriage allowance, which allows someone who does not pay tax at a rate higher than basic rate to transfer 10 per cent of their personal allowance to a spouse or civil partner who also does not pay tax at a rate above basic rate.”

Ms O’Connor adds: “Once we enter the new tax year, you miss the opportunity to fill up the previous year’s allowance, which is why March is the ideal time to forensically check that you have made the most of what’s available.

“HM Revenue & Customs does not spell these things out clearly to everyone who is eligible unfortunately, so the responsibility to find out about their allowances lies with individuals.”

Making allowances

Whatever the time of year, a structured approach is key: “It’s important to start with the plan: looking at what your client needs to save and when they will need it,” emphasises Jeannie Boyle, executive director and financial planner at EQ Investors.

So, what should clients be considering now, as a priority, when reviewing their finances?

Catriona McCarron, wealth manager at Ascot Wealth Management, says: “The basic allowances we’d ensure a client is using (especially close to tax year end) starts with pensions and Isas.

“The prioritisation of pensions over Isas largely depends on the client’s life stage, but assuming they’re a younger saver with a shorter time horizon for access, we’d prioritise the use of their Isa allowance.

“For those focusing on retirement planning we’d look to ensure they’ve used their pension allowance for the current tax year, and whether they have carry-forward availability from the previous three tax years.”

Capital gains tax allowances are also a key consideration.

If any clients are thinking about selling an asset worth £6,000 or more, such as property from their portfolio, shares, art, antiques – or other assets that attract CGT, such as sets of vases or chessmen (as HMRC specifies) – the current CGT allowance is only £12,000, which could be exceeded quite easily.