Resolve to be on top of tax

Following a few financial tips can bring big gains

Seven million people are likely to have made a new year's resolution that involves sorting out their finances.

But according to one opinion poll, 12 per cent will have broken their resolutions within a day, while only a quarter will be sticking to theirs a year later.

Many resolutions, such as switching to a credit card with a more competitive rate, are easy to keep. Some, for example investing in a unit trust or Pep, will cost money. Others, such as winning the National Lottery, are slightly less realistic.

In many instances, following a few tax tips will cost little or nothing. But the gains can be substantial.

q Always check tax codings, notices of assessment and tax refund calculations. The Inland Revenue's systems may be computerised but mistakes can and do happen. Keep enough records of personal transactions to deal with Inland Revenue queries.

q Make full use of the entire family's tax allowances and exemptions if generous grandparents have given children money or investments. In the current year, a family with two children could receive £15,500 income without paying tax. The same family couldhave gains of £23,200 before paying capital gains tax.

q Help elderly family members organise their financial affairs by ensuring that any investments they make are tax-efficient. Tessas, Peps, some kinds of National Savings and guaranteed income bonds are all tax-free. In effect, this increases their yields.

q Make sure that everyone has a valid will that reflects current family circumstances. Married couples with joint estates worth more than £300,000 should consider setting up trusts to reduce the future liabilities of their estates.

q Plan now for inheritance tax without leaving it till after a future government is elected. It only took Denis Healey, Labour's last Chancellor, 26 days to introduce taxes on lifetime gifts after his party's election victory in 1974.

q Make donations to charity in a way that ensures maximum tax relief for donors and the charity. Giving through the Aid Foundation ensures that even small charities can benefit from the relief.

q Businesses should check their VAT assessments, as a large number are excessive and appeals may be necessary.

q Check the cost of your home insurance the next time you receive an annual statement from your mortgage lender.

Millions of home owners will receive statements in January, with details of their existing home insurance premiums. A few phone calls could save you money.

q Plan in advance for children's and grandchildren's future education needs by starting a savings plan that will pay for their school fees or university costs.

q Consider starting a permanent health insurance plan, which helps in the event of critical illness or if you become permanently disabled.

q Review any existing pension arrangements, assess your future needs, and either start a personal pension or be prepared to supplement the existing occupational or personal scheme by making additional voluntary contributions.

q If your cash is invested in equity-linked funds, do not be panicked by the stock market's current volatility. Be prepared to stick it out. However, if your investment is a consistent underperformer, find out why, or switch your funds elsewhere.

q If you opted out of an occupational pension scheme to set up a personal one, make sure you have contacted your financial adviser or the insurance company you bought it from to find out whether you are entitled to any compensation.

For those tempted to sort out their finances in 1995, IFA Promotion, which promotes independent advice, is offering a free half-hour session with a consultant during January. Telephone 0483 461461 for the name of an adviser near you.