Firstly, let me take this opportunity to wish all the readers a Happy, prosperous and Peaceful New Year. Many people see this time of year as an opportunity to start off with a clean slate and talk often turns to the subject of New Year’s resolutions. While most resolutions usually involve some form of exercise or abstinence, it may also be an opportune time to consider resolutions of a financial nature. After all, when better to sort out your finances than at the start of a new year. Below I have outlined some practical steps that may help get your finances back on track for 2016.
Make sure your investments are as tax-efficient as possible
Many investment decisions are often made without thinking about how much tax might be paid at maturity, it is important to familiarise yourself with the different tax rates which apply to various investments. For example, any Interest earned from money left on Deposit is now liable to DIRT at a rate of 41%, this rate of DIRT has increased by almost 70% since 2007. Any money which is invested in a Managed Fund Structure is liable to Gross roll up Tax also known as Exit Tax when you exit the Fund, the current rate for this Exit Tax is also 41% although if a company structure invests in a managed fund they are charged a lower rate of Exit Tax of 25%.
Capital Gains Tax is currently one of the most attractive structures for a number of reasons, the rate is only 33% which is lower than both DIRT & Exit Tax, also, if you have existing capital losses you should be able to carry them forward and offset them against future gains, also each individual has an annual CGT exemption of €1,270 (€2,540 per couple) where this portion of your annual gain is Tax free.
Review your protection Policies
Most people already have a life insurance or Serious Illness policy in place but when was the last time you reviewed it, do you know if your cover is still appropriate? You really should review your policies every few years as your circumstances may have changed. Some factors which may impact your requirement for cover are: A change in your Marital status, Do you now have more children than when you took out your original cover, Have you changed home or Job, have you given up cigarettes? In some cases, premiums can reduce by up to 50% if this is the case, it is well worth getting up to date quotes. Other factors such as the Gender Directive in December 2012 or simply the competition between life companies, wcould mean that it is possible for you to reduce your monthly premium without compromising on the quality of cover.
Tidy up your Pensions
It is now quite common for people to move jobs numerous times throughout the course of their career and as a result it can often be difficult to keep track of pension savings. One of the most common mistakes people make is believing that tracing a pension from a previous employer is simply not worth the effort. This can often be a costly mistake to make. If you and your employer have paid into a pension for even just a few years, depending on when that pension was started, significant sums may have accrued over the years. Recent research by the Pensions Ombudsman estimated that up to €500m worth of pensions currently remain unclaimed. Make sure whoever administers your current or previous pension scheme always has your up-to-date contact details. This also applies when you may have taken redundancy from an employer, make sure you are fully aware of the transfer options regarding your accumulated pension.
Organise a succession plan
Succession planning is unlikely to feature in most people’s New Year’s resolutions, but as most wealth in Ireland rests with the older generation, it is an extremely relevant topic. You can plan for the transition of wealth by reviewing your own, and your parents’ or children’s, circumstances and asking a few basic questions. Do you have a Will in place and is it up to date? Have you considered putting an Enduring Power of Attorney in place to help protect your assets .Who is getting what assets and are they passing tax efficiently? Are you utilising the annual small gift exemption, remember €3,000 can be gifted each year free of CAT under this rule. Over time this can significantly reduce any potential Inheritance Tax Bill
Like anything else in life, meeting your financial goals requires a plan that is easy to follow. Taking control of your financial affairs by working with an Independent financial advisor will help ensure that you have a greater chance of implementing your New Year’s resolutions.