Yule log

Lawyers should take advantage of the twelve days of Christmas to review their finances. David Dale provides the lowdown on how to extend your festive cheer


The ghost of Christmas presents
Christmas is a time for giving and receiving – which in our modern, consumerist age usually means spending money. In order to make sure you have enough money for all those presents you will have to buy, it is worthwhile making sure you are getting the most competitive rates of interest from savings accounts. In days of old, 30-day notice accounts or one-year bonds were the most popular form of savings accounts, but they were not very convenient if you needed cash for that last-minute present you forgot to buy. Now, internet accounts offer competitive rates from as little as a deposit of £1 – and with instant access.

Just gift us the cash
Time spent selecting an appropriate present for a friend or relative reflects our considerate and thoughtful natures, but if you think in return you might be getting another pair of ‘dancing Santa’ socks this year, hard cash might be a better option. Giving money at Christmas can also be tax-efficient, so long as it is recorded within the annual gift allowance for inheritance tax. The annual gift allowance remains at £3,000 in each tax year. This can be related back to the previous tax year if the gift allowance had not been taken then. This means that a married couple can gift up to £12,000 in one tax year.

Santa Brown vouches for the kiddies
The festive season is a time for children, and this Christmas will be the last before child trust fund vouchers are issued. The Government has introduced child trust funds for all children born after September 2002. Vouchers for £250 will be issued to parents in the spring of 2005. These will have to be credited to a child trust fund (CTF) of their choice within six months, or the state will open one for them. The idea is that further contributions of up to £1,200 per annum can be added to these child trust funds, which will receive tax-free growth until the child reaches 18 years.

Mr Scrooge – taxing gifts of money to children
Interest or dividends earned from gifts made to children by parents are subject to tax as if the gifts belonged to the parents when the interest or dividend exceeds £100 per annum. As this is the case, it is often better for grandparents to make gifts of money to children.

Clearing out the old wrapping paper
Wrapping presents, giving Christmas cards and all the other paraphernalia that goes with Christmas usually means we end up accumulating vast amounts of unused wrapping paper and years’ worth of Christmas cards, which clog up cupboards and storage space. Probably the best thing to do is to clear out the excess baggage and make a new start. A similar philosophy could be applied to existing investments and life assurance policies. It is worth spending money on a professional review, assessing investment needs and risk issues, including income protection, critical illness cover and life assurance. For instance, life assurance rates have reduced over recent years and savings can often be gained by rebroking existing policies.

Christmas can be a taxing time
Ever since self-assessment was imposed, income tax needs to be paid on 31 January. If self-assessment tax returns have not been submitted to the Inland Revenue by 30 September, the year after the end of the tax year in question, the Inland Revenue requires the return, the tax, together with an income tax calculation, by 31 January. This means that Christmas can also be a time of feverishly hunting out dividend statements, certificates of tax paid on deposit interest and all matter of receipts and records of expenses. This is no excuse to tear yourselves away from the Christmas repeats – but someone has got to fill in those happy returns.

Rocking Around the Christmas Tree
– office parties
The office party is a great opportunity to enjoy yourself with fellow fee-earners and staff. Do not get too carried away, though, particularly with one too many sweet sherrys. Make sure everything remains above board under the mistletoe, or you could be taking a detour via your matrimonial team’s office after the Christmas excess.

The Ghost of Christmas Past
– poor stock market returns
Over the past four years, stock markets have had a particularly difficult time. There has been a recovery of more than 40 per cent since their low point at the beginning of 2003, and it would appear that another year of growth can be expected for 2004. The year-end may be a good time to give some consideration to how your assets may need to be rebalanced so that tax and inflation can be appropriately considered along with risk and investment objectives.

Individual saving accounts
UK residents are entitled to a maximum individual saving account (ISA) allowance of £7,000 in each tax year. These are often taken up in the last month of the tax year, meaning that quite a rush can be expected in the spring. If stock markets have returned to their gradual recovery, it may be advantageous to invest sooner rather than later. Christmas would be a good time to consider using that allowance, while the tax year still has a few months left to run.

Wills
No one likes to think about how your loved ones will be looked after, should the worst happen. Surprisingly, lawyers are just as unlikely to have a will as any other professional. Given that the intestacy rules can create a great deal of excessive complication, it is worthwhile ensuring that writing a will is on your ‘to do’ list for the new year, or making sure that your will is up to date if you already have one.

The Ghost of Christmas Yet to Come
Christmas is an expensive time of year. This does not change when people stop work, so thought must be given to saving for Christmases in retirement, which means appropriate pension planning is imperative.

New year’s resolutions
The Inland Revenue is due to impose new pensions rules in 2006. The simplification of the taxation of pension regulations should allow the investment of residential property in pensions but will push the early retirement age up from 50 to 55, among other things. You should resolve to review existing pension arrangements to take advantage of these changes before the new rules come into force. For instance, those lucky lawyers with more than £1.8m in their funds may find themselves having to pay extra tax if they do nothing.
Christmas will be a busy and enjoyable time, but also an opportunity for lawyers to give time to their own affairs, just as they would to their clients’.

David Dale heads the multidisciplinary financial planning group at Dickinson Dees