You need to act quickly in order to make use of the various allowances and tax reliefs created to encourage us all to take responsibility for our finances.
When it comes to optimising your finances, it is often a question of use it or lose it. In many cases you can’t carry forward allowances or tax relief you haven’t used by the end of the current tax year (5 April 2017), so you need to act quickly. Here are some of the ways you may be able to make your finances more efficient.
Put your savings in an ISA
An ISA is a savings account on which there is no tax to pay when you withdraw money. Each tax year you can save up to the annual allowance (£15,240 16/17 tax year) in an ISA. You can access your money at any time, although stocks and shares ISAs should be thought of as long- term investments. It is important to choose an ISA that matches your objectives and the amount of risk you are able and willing to take. See our article below and on page 2 about investments for people from all walks of life.
Make tax-efficient pension contributions
The state and your employer’s pension will probably provide you with enough money to cover your basic costs. However, if you want to have a retirement free from financial worries you may need to save more. You receive tax relief on your pension contributions up to a certain limit. In effect, the government pays the equivalent of the basic rate income tax paid on your contributions directly into your pension – even if you don’t earn enough to pay tax.
Make use of both partners’ allowances
If you earn more than your spouse you may be able to transfer some of your annual allowance to them. You can also pay into their pension and their ISA (they will still get the tax benefit). You could also consider transferring other assets.
Optimising your finances if you are older
Check whether there might be inheritance tax to pay when you eventually die. The rise in house prices combined with the new pension rules mean that more people are affected by this. If you are, you can reduce the value of your estate by giving away up to £3,000 each tax year.
Tax advice which contains no investment element is not regulated by the Financial Conduct Authority. The value of your investments can go down as well as up, so you could get back less than you invested.