If you do one thing this year, make the most of your tax allowances
There are options designed to help you pay less tax on your savings and investments – to help you grow your wealth
According to recent figures from HMRC, we’re paying more tax than ever. That’s why it could really pay off to think about whether you could minimise how much tax you’re paying as part of your long-term financial plans. One way of doing this is through an ISA or a pension.
Often the two types of investing are pitted against each other to see which comes out on top. However, the different tax saving benefits that each offer means they could both play a valuable role in your financial future – especially in helping you to plan for a fulfilling retirement.
How could a pension help you?
When you invest into a defined contribution pension, you benefit from tax relief of at least 20%.
- Effectively, for every £80 you pay in, tax relief means a further £20 goes into your pension pot.
- If you’re a higher or additional rate taxpayer, and you claim for it through self-assessment, you can get tax relief of 40% or 45% respectively.
- Typically, you can pay a maximum of £40,000 each year into your pension. There’s also the lifetime allowance. This limits you to having £1,073,100 in your pension before it’s subject to additional tax.
With the lifetime allowance being set so high, it means there could be an opportunity for you to pay into a pension to support your financial future, whilst benefitting from tax relief at the same time.
Hopefully you’re already paying into your employer’s pension scheme, but you might be able to take even more advantage of the tax benefits available through pensions to support your long-term plans. For example, you could take out a second pension yourself.
You can access a defined contribution pension from 55, and use the money however you like (subject to some tax considerations). So even if you’re close to retiring, it might be worth reviewing your options in order to get the most out of your pension plans.
Call today on 0345 607 9809 to see if Skipton’s Financial Advice could be right for you.
What’s the deal with an ISA?
With stocks and shares ISAs, there’s no tax relief when you invest money. But once inside an ISA, there’s no tax to pay on any growth you achieve, or to make withdrawals.
Because of the tax benefits that come with an ISA, there’s a limit for how much you can invest in one tax year. For 2020/21 this amount stands at £20,000.
The ISA allowance for each year doesn’t roll over. So if you haven’t used this tax year’s allowance, it could prove really beneficial to do so whilst you still have the chance. Or start to get ready to use next year’s ISA allowance, when the new tax year begins on 6 April 2021.
Building your wealth doesn’t need to be complicated
It’s a given that you’ll want to do all you can to reduce your tax bill. But you might not be entirely sure of what comes next. Skipton Building Society offer personalised financial advice to help you consider your options.
Gareth Smith, Skipton’s Retirement Planning Lead explains, “Paying less tax on your savings, investments and pensions could make a real difference to your financial future. It’s all about considering your long-term goals, and how and when you need your savings.
“Our nationwide team of advisers could help you review your current arrangements and how they measure up to your goals. This allows them to present recommendations tailored to your circumstances – with no pressure to act.”
Get in touch with Skipton today – Here’s how it works…
- It all starts with a free telephone consultation on whether financial advice might be right for you.
- The next step would be to arrange a review with one of our advisers – who can meet you at your local Skipton branch, or through our Skipton Link video service.
- We will research and present recommendations personalised to your needs.
- Take as long as you need to decide what to do next. There is no pressure to act on our advice – or an upfront fee to pay to hear them.
To see if you could benefit from financial advice call Skipton Building Society today on 0345 607 9809 or find out more here.
Stock market-based investments put your capital at risk and you may get back less than you invested. The value of your investments and any income from them may fall as well as rise. The tax treatment of investments depends on your individual circumstances and prevailing legislation, both may change in the future. A pension is a long term investment and our capital is at risk. Your fund value can fluctuate and go down, you could get back less that you invested.