When it comes to managing your money, it’s easy to be overwhelmed by the numbers. If we’re honest, even though we absolutely know it could save us some money, many of us can’t find the time or the motivation to wade through GOV.UK’s many fun pages of tax rules.
But here’s the thing: if you’re not taking advantage of all the tax allowances fully and absolutely legally available to you, then you’re throwing money away. Taking just one example, if you’re a higher or additional rate taxpayer (so, being taxed on income above £50,271), you could without anyone having any issues at all with you being socking away your annual contribution of a full £10,000 to your pension while only paying £5,500 out of pocket.
But that could change, and Chancellors like to mess with you every Autumn. Many allowances are reset each year, which means a little saving here and a bit more there and there can seriously add up over time—and so benefit you and yours.
What you really need is an expert advisor, as in someone whose sole focus is all this stuff and who has passed hard exams about number-y and legal-y things so they can advise you about the allowances you might otherwise miss.
Even you only have so much brainpower and attention span
To carry on the honesty; unless you are one of those unusual people who somehow can strip emotion out of your decisions (and which Science says is almost impossible), you also need someone in your life who will nag you to make sure you do what needs to be done to benefit in the most beneficial way from them!
And who is also a registered professional and so will also tell you things like this: What follows is based on our current understanding of tax rules and allowances; all tax laws are subject to change, so it’s important to seek professional advice before making any changes to your financial planning.
Let’s run some things up flagpoles to see what you think and if you think this makes sense: five of the most commonly overlooked tax allowances that could help to increase your income, boost your savings and reach your financial goals faster, and which even the smartest and financially literate professionals out there (er, which let’s just say isn’t all of us) don’t consistently take full advantage of.
More than one great thing about being a Company Director Own a company, or hold shares in a company? You might now know that the first £500 you earn from dividends is completely tax free. If you are paying tax on dividends above your allowance, this tax could still be lower than income tax. And a pension contribution from your company reduces your profits and your corporation tax.
A nice side of tying the knot If you’re married or in a civil partnership, make sure you check out the marriage allowance. Why this is a good idea: it’s a mechanism that lets you transfer some of your spouse’s personal allowance to you. In pounds, shillings and pence terms, read that to mean you could increase your personal allowance by up to £1,260 each year if your spouse isn’t using their own full allowance. More generally though, if your spouse is not earning use their allowances and lower tax rates.
Don’t be in the losing ISA majority The handy thing about ISAs is that you can place up to £20,000 in them each year, and any returns are free from income and capital gains tax. This allowance resets every year, so if you don’t use it within a specific year, you’ll lose it; the numbers show that just one in sevenBrits manage to get there. To make it all nice and complicated for the non-specialist, different types of ISA have different rules, returns and risks—of course. So, you’ll need to do your research and be able to wow people at dinner parties about how their cash ISA is great for short-term saving but they you have a greater appetite for risk and a long-term view, stocks and shares ISAs can offer higher returns. Bottom line, a good financial advisor can help you figure out which is right for you. (Do we still do dinner parties, by the way; didn’t COVID kill that off? Hope not.)
Maximising that handy capital Gains Tax Annual Exempt number Ordinarily, selling a second home or expensive personal possession will leave you liable for capital gains tax. But did you know that you can keep up to £3,000 of these gains each year, without incurring any tax? Plus, you may be able to reduce the CGT owed on a transaction by deducting losses or claiming certain reliefs.
Making your pension dosh work as hard as you can This is a big one for anyone looking at their long-term financial planning, and the rules around lifetime pension allowances has recently changed. This year, you can pay up to £60,000 into a pension while benefiting from tax relief—a sum that covers contributions made by you, your employer or a third party. You can carryforward unused allowances also from the three prior tax years if you have enough money to invest and earnings. Your adviser can help with the calculation.
Get an IFA in your corner
Each of these allowances can make a small difference to your financial future. Combined, though, they could make the difference between early retirement and another five years at your desk.
You might say I’m saying this with an agenda; it’s not simple to track allowances from year to year, the rules change almost as fast as your finances.
That’s where a good advisor comes in. Our literal job here is work with you to keep you up to date with the latest tax rules and allowances, which can stay the same for a generation then suddenly change overnight.
Together, let’s map out a strategy that fits your specific personal and familial financial goals. Make it my job to remind you when things need to be done, so you don’t miss out on those opportunities to boost your income. That’s what you have IFAs for while you get on with having the full life you study, graft and keep on pushing yourself to have.
- This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
- The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
- The favourable tax treatment of ISAS may be subject to changes in legislation in the future
- An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a cash ISA
