Tax saving tips to make the most of your money
1st Jan 2015 Managing your Money
We are well into the new tax year and many of the allowances have now changed – giving you more opportunity to shield your savings from tax and make the most of the incentives the government gives you to save. Here are our top five savings and tax tips.
1. Make the most of your ISA Allowance
Individual savings accounts, or ISAs, are among the most tax-efficient ways to save. They act like a wrapper into which you put your savings.
ISAs are highly flexible and you don’t have to pay tax on any deposits you make or any of the growth within the account.
They're also suitable for all savers. You can invest up to £20,000 into an ISA this tax year (2017-2018), in any combination of cash and stocks and shares. You don’t have to use all your allowance, but you can’t carry it forward into the next tax year.
2. Don’t forget the Personal Savings Allowance
The PSA was launched in April 2016. For basic-rate taxpayers, it is particularly useful because you can earn £1,000 of savings interest a year without paying tax on it.
This means that if you have interest from bank and building society accounts you will potentially be able to receive it tax-free.
Here’s how it works:
- Basic-rate (20 per cent) taxpayers will be able to earn £1,000 interest with no tax
- Higher-rate (40 per cent) taxpayers will be able to earn £500 interest with no tax
- Additional-rate (45 per cent) taxpayers: no PSA allowance
3. Use your pensions allowance
Despite some rule changes, investing in a pension is still a very tax-efficient way to save for the future. You receive tax relief on your pension contributions, and you can even contribute to a pension if you are not earning.
If you're a UK resident and under the age of 75 you can make an annual contribution of up to £40,000.
It works like this:
- You receive tax relief on your contributions as you pay into your pension and your savings have the possibility of growing with minimal tax.
- You can either pay £3,600 gross (which includes the tax you get back from the government) or 100 per cent of your earnings, capped at £40,000
- The annual allowance applies across all schemes, so if you are contributing to more than one pension it is the total amount for all of the schemes
- If you exceed the annual allowance you may have to pay an extra charge
- You can start taking benefits at age 55, although you should think carefully about how you use your pension fund, as the proceeds from it may be taxed
- You can find more information from the Pensions Advisory Service here
4. Make the most of allowances for your spouse or children
If your spouse isn’t working they can still make a £2,880 pension contribution which the government grosses up to £3,600 with tax relief.
You can also pay into a pension for your children. Children can have their own Junior ISA, into which anyone can contribute £4,128 per tac year.
5. Find out if your tax code is correct
If you are not sure you are paying the right amount of tax, you can check on HMRC’s website.
There are a number of options. You can:
6. And finally, think about paying down debt
Interest rates and mortgage rates are at an historic low, which means that debt is relatively cheap (although it may not feel like it if you are trying to balance your household budget at the end of the month).
It could be that in future the rates on credit cards, loans and mortgages will increase, so now is a good time to reduce your debt if you can. If you are struggling to make ends meet, or are worried about debt, you can get free advice at a charity such as National Debtline or the StepChange debt charity.
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