The importance of an annual tax review

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At a glance

  • It’s important to keep an eye on your tax position to ensure you’re neither overpaying nor underpaying tax.
  • An expert adviser can go through everything with you, from making sure your tax code is correct to checking you’re maximising tax relief on your pension contributions.
  • Put an annual tax review and regular catch-ups in your diary to help you stay on top of your tax situation and in control of your money.

Tax is dull, unquestionably so. Most of us would rather clear out the loft or scrub the bathroom than settle down to an afternoon reviewing our tax situation.

It’s all too easy to be apathetic, but just as a yearly MOT for your car can save you from an expensive breakdown, so sparing an hour or two to review your tax position can potentially leave you substantially better off – and also give you surprising peace of mind.

Without careful monitoring, it’s possible to end up paying too much tax or, in some cases, not paying enough, which could see you landed with a fine.

When might you need a tax health check?

As much as you might dread reviewing your tax status, it may not be as bad as you anticipate. Your St. James’s Place adviser can go through everything with you in an hour or so, from reviewing your tax code and checking you’re making the most of any Stocks & Shares ISAs to maximising tax relief on your pension contributions.

If you’re already drawing on your pension or contemplating dipping into it, your adviser help guide you through accessing your cash in the most tax-efficient way, taking all your finances into account. The last thing you want to do is risk a big tax bill by taking a lump sum out of your pension when you could have taken it tax free from another pot.

Similarly, if you’re concerned about leaving your loved ones with a large Inheritance Tax bill, your adviser can help you work through steps to mitigate it.

Tax breaks and allowances let you save and grow your wealth, and advice can help make sure you use them to your full advantage – whether you want to build a nest egg to support a child or grandchild as they face the financial challenges of adulthood or feather your own nest and grow your retirement savings.

It’s impossible to say how much money an annual tax review could save you – that depends on your own financial situation. However, when we talk to clients, the value of a proper tax review goes beyond simple financial gain. It’s also about the sense of calm that it can bring, leaving you safe in the knowledge that you won’t be hit by a surprise tax bill or be caught on the back foot. It’s about feeling in control of your money and not letting it control you.

To stay in charge of your situation, it’s important to keep the conversation going with your adviser throughout the year and not store up everything for your annual review. Going back to our car analogy – you wouldn’t wait for your MOT or service if the engine was making a funny noise.

What we’ve learned from the pandemic and remote working is that it has never been easier to stay in touch with your adviser, with most of us able to slot in quick 20-minute catch-ups over the phone or on Zoom relatively easily.

This can be crucial if your circumstances have changed in some way or there has been any upheaval in your life. It might be that you’ve changed jobs, been made redundant or become self-employed. Or you may have had a pay rise. All these things could mean you need to manage your finances slightly differently to make sure everything is running as tax efficiently as possible.

It may even be a minor niggle causing you irritation – for example, a new company car or adding a child to your medical insurance has played with your tax code. Talk to your adviser and you may find a quick and easy resolution.

Even if you don’t make any changes to your financial plans, catch-ups and regular communication with your adviser always make sense – the more your adviser understands what is going on in your life, the more they will be able to help.

If you would like help identifying simple but effective tax-saving opportunities, talk to your St. James’s Place Partner about completing a Tax Health Check.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

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