New year is traditionally the time when we vow to turn over a new leaf with our finances. For middle class readers above a certain wage, shockwaves from October’s Budget means this is no longer optional.
This list, compiled with help from some of the UK’s top financial advisers, will take you from “to-do” to “ta-da” in 10 easy-to-follow steps.
You could tackle these on your own, with your partner or perhaps alongside a professional adviser.
1. Spend an hour scrutinising spending
No matter how much or how little money you have, this tip is bound to save you money. Scrutinise your direct debits, bank and credit card statements line by line to see what can be cut, and don’t forget to check the app subscriptions buried deep within your smartphone settings.
As you do this, set up reminders (electronic or otherwise) to alert you before key deals expire. The sweet spot for getting the best price on your car insurance is 21 days before your existing policy expires. You can line up a new mortgage deal six months before yours ends, and “ditch and switch” if rates drop in the intervening months.
Finally, check if you are among the millions of Brits overpaying for an out-of-contract mobile phone by sending a free text with the word “INFO” to 85075. If you keep your handset and switch to a Sim-only deal you could save hundreds of pounds in the year ahead.
2. Work out your cash strategy
Now you’ve unlocked some savings, will you stash it in a cash savings account, or invest it? “After a couple of years of high interest rates, it could be time to rebalance your cash reserves and increase what you’re putting into long-term investments,” says Wesley Harrison, head of financial planning at Benchmark, part of the Schroders group, adding that this was the biggest shift reported in the recent Schroders Financial Adviser Survey.
Aim to have three to six months worth of living expenses in your cash emergency fund, rising to six to 12 months if you’re retired or self-employed. The Bank of England is expected to cut rates twice in 2025, so lock in a good rate of interest on your cash pile while you can. The number of savings deals on offer hit a record high last month, according to data provider Moneyfacts, with top rates of 5 per cent on a cash Isa from Moneybox, and Atom Bank offers 4.85 per cent on its instant saver reward account (“earn more if you don’t withdraw”).
Lastly, don’t forget to utilise your spouse’s and children’s tax allowances for savings and investments as well as your own. Each UK adult has a £20,000 Isa allowance, falling to £9,000 for under-18s.
“You can also set up stakeholder pensions for a non-earning spouse or child, and pay in up to £2,880 per year which is topped up to £3,600 with tax relief,” says Emma Sterland, chief financial planning director at Evelyn Partners. “If your partner works but has a small pension, it’s also possible to fund pension contributions up to 100 per cent of their annual earnings (up to a maximum of £60,000) but they will get the tax relief, not you.”
3. Will you have an IHT problem?
Defined contribution (DC) pensions are due to come into the scope of inheritance tax (IHT) from April 2027, creating big problems for families hoping to pass down wealth.
Under the current rules, many wealthy couples opted to nominate their children or grandchildren as the beneficiaries of DC pensions as they would likely pay a lower marginal rate of income tax on withdrawals. Advisers feel this trend will be reversed in favour of the surviving spouse or civil partner inheriting the whole pension.
“There will be no IHT to pay on the first death due to the inter-spousal exemption, and hopefully a bit more time for the surviving spouse to plan a gifting strategy to reduce the tax payable on the second death,” says Ian Dyall, head of estate planning at Evelyn Partners.
If you are considering updating your nomination of beneficiaries form, you’ll need to complete one for every single pension you hold.
Dyall says some clients are taking tax-free cash, gifting lump sums to children or grandchildren, and hoping they will survive for seven years so the value of the gift falls out of their estate.
Others are considering making “gifts from excess income” taken from their pensions or other investments. This may trigger an income tax bill, but so long as the rules are satisfied, there will be no IHT on top.
“What HM Revenue & Customs is looking for is a pattern of giving; a regular direct debit rather than a one-off large sum,” says Dyall. This doesn’t necessarily have to be for exactly the same amount each month; it could be linked to a variable income, such as gifting investment dividends, or a variable cost, such as school fees.
As mentioned, funding pensions for children and grandchildren is another popular ploy: “Yes, you’re paying some income tax on the withdrawal, but they’re getting tax relief on the way in.”
However, Dyall warns: “If you are trying to use the excess income exemption, what you can’t do is take all your tax-free cash, stick it in a bank account and gift it gradually from there, as then it will be seen as a gift from capital and not from income.”
Taking out “inheritance tax insurance” is another strategy — funding a whole of life policy that pays out when you die, enabling your survivors to quickly settle any IHT bill.
4. Check your workplace benefits
It pays to scour the staff benefits portal, says Gillian Hepburn, commercial director at Benchmark. Beyond pensions, medical insurance and parental benefits, large companies commonly offer their employees extras including vouchers for free eye tests, glasses, flu jabs, discounted gym membership, travel insurance and even will writing services — plus several other work perks mentioned in tips below. What does your firm offer?
Looming IHT changes mean you should ping an email to HR and check the tax status of any workplace death in service benefits, advises Christine Ross, client director at Handelsbanken Wealth & Asset Management.
“Say that you would like to understand if your company’s death in service benefits are linked to a pension scheme, meaning they could be in scope of IHT; and if they are, what your employer intends to do about it,” she says. “While you’re at it, double check who your policy is nominated in favour of.”
5. Will you cross a tax threshold in 2025?
Frozen tax thresholds mean record numbers of workers are being dragged into the 60 per cent tax trap on income between £100,000 and £125,140 as the personal allowance is tapered away. Even if your basic salary is below this level, a bonus payment or overtime could take you over the threshold — and if you’re a parent, you would also lose valuable childcare benefits.
Increasing your pension contributions is the obvious way to reduce your taxable pay on paper. This is easy to do if your employer offers a salary sacrifice scheme; many will also let you opt in advance to have all or part of your bonus paid directly into your pension. Most individuals can save up to £60,000 tax-free into a pension per year.
However, this isn’t the only option. Growing numbers of employers are offering staff the ability to purchase or lease an electric vehicle (EV) via salary sacrifice. Commute on two wheels? The Cycle to Work scheme operates on the same principle; e-bikes are allowed and there’s no maximum price limit. Check your employer’s scheme for full details.
6. How well insured are you?
This tip is especially relevant for families with one big earner. “Think about it — you’re more likely to be off sick than get a critical illness or die,” says Ross. “But for how long would you receive your full pay if you were sick or injured and could not work?”
Known as income protection or permanent health insurance (PHI), some employers provide this cover as a staff benefit for a fixed period. Find out by emailing HR and asking: “I’m thinking of taking out extra cover, but I want to check what we already have.”
Depending what’s in place, you might wish to tailor some additional private cover around this to cover your basic monthly outgoings (this can start where your employer’s cover ends, significantly reducing the premium).
“For many people, knowing you’d be able to pay all the bills if you got sick is more important than life cover or a critical illness policy which will only pay out for specific conditions,” says Dyall.
Setting up a lasting power of attorney (LPA) for your health and finances is a faff, but can be done online or with the help of a solicitor. “Don’t make the mistake of thinking LPAs are just about dementia and Alzheimer’s,” advises Ross. “Incapacity can be temporary if you have an accident or end up in hospital and need help managing your affairs.”
7. Time to get married?
IHT changes prompt advisers to report that more cohabiting couples are considering getting married for tax purposes, because the inter-spousal exemption means assets including properties, pensions and Isas can be passed tax-free between spouses or civil partners upon the first death.
While divorce doesn’t invalidate an existing will, be aware that getting married does. “You will both need to make a new will,” says Ross, adding that it is possible to do this before the big day “in contemplation of marriage”.
Couples who have been married for years often make the mistake of thinking they don’t need to make a will, she adds. In England and Wales, if you’re married, have children, and die intestate, only the first £322,000 of your estate and personal possessions will go to your surviving partner. “Above that level, your partner gets half and your children get the other half, which will be held in trust if they are very young,” she adds. “Do you really want your child getting half of your residual estate at the age of 18? If not, make a will!”
8. Perform a pensions check up
There are now more than 3mn “lost” pensions in the UK worth an estimated £31bn. With an average value of nearly £9,500, make use of free digital tools such as Gretel and the Gov.uk Pension Tracing Service to track down providers and update your contact details.
If you’re over 45, hop over to the Gov.uk state pension forecast page — you still have time to pay to plug any gaps in your contribution record going back to 2006 before the April 2025 deadline, after which you can only go back six tax years.
9. Time to take advice?
The growing complexity of tax rules affecting family finances could lead you to seek professional advice in 2025.
Word-of-mouth recommendations are valuable, but if you need tax advice more than investment strategy that you need assistance with, search for a financial planner. Most firms will offer free taster sessions; do your homework before committing to this, or you may find yourself at the end of a sales pitch for services you do not need.
10. Set your investment strategy
The performance of US markets continue to defy gravity, but the big question for investors is what impact Trump’s threatened trade tariffs will have on world markets — and their portfolios — in the year ahead.
Index fund investors will have done very well in 2024 as the “Magnificent Seven” US tech giants dominate global equity trackers. However, some may be worried by concentration risk and tempted to adjust their strategy.
“It’s always easier to diversify when you’ve made money and are in a position of strength, rather than taking corrective action,” says John Moore, senior investment manager at RBC Brewin Dolphin.
Tech and AI will be long-running themes, but he believes the US market is evolving. “Trump was elected on a Main Street mandate, rather than a Wall Street one, strengthening the case for broadening US exposure as a lot of what will come will be focused on America’s domestic economy,” he says.
One move passive investors could consider is diversifying some of their portfolio into a equal-weighted S&P 500 index fund, rather than a market-weighted one. “This would immediately give investors more exposure to healthcare, financials, utilities, industrials, retail and consumer stocks — lots of great businesses and a much broader slice of America,” he adds.
Active investors could consider adding exposure via US smaller companies funds (“bear in mind that small companies in the US are huge,” Moore says). The JPMorgan American Investment Trust offers a balance of growth and value, and the GQG US Equity fund has proved popular with investors as managers are not afraid of taking bold calls with their high conviction picks.
Adding exposure to unloved UK stocks is another route. If takeover activity continues in 2025, this could boost the appeal of UK special situations funds (Fidelity, Artemis and BlackRock all offer these).
Finally, could it be time to take some profits on crypto? It cannot be held in a tax wrapper, so soaring prices following Trump’s victory mean many investors will be sitting on a capital gains tax liability.
Those who haven’t used their shrunken annual CGT allowance of £3,000 could consider banking profits up to that level before the end of the current tax year.
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