One of the most important parts of investment planning is making the most of your money, and one of the smartest ways of doing this is to maximise your tax allowances each year. Doing so will not only help achieve your longer-term goals quicker, it can also make sure you’re not missing out on valuable tax advantages.
Whether you’re looking to start a family, saving to buy a home or planning for retirement, these big life events need a solid financial plan behind them so they can be achieved in the time you want – and in the way you want.
This article explains what the personal tax allowance is, how much you can save and ways in which you can do so.
What is the personal tax allowance?
Your annual allowance is the amount you can invest each year to maximise the amount of tax relief to which you may be entitled.
The annual pensions allowance enables you to contribute up to £40,000 in 2021/22. If your adjusted income exceeds £150,000 in 2021/22, your annual allowance will be reduced by £1 for every £2 that exceeds this threshold down to a limit of £10,000.
With a Cash ISA or a Stocks & Shares ISA (or a combination of the two), you can save or invest up to £20,000 a year tax-efficiently, without paying any tax on the interest or profits.
You also have a Personal Savings Allowance, which means you can keep interest of up to £1,000 this tax year if you pay Income Tax at the basic rate (£500 for higher-rate taxpayers).
Neither of these annual allowances can be carried over to the next tax year, so it’s a case of ‘use it or lose it’.
When can I use your personal tax allowance?
You will need to act before the end of the 2021/22 tax year on 5 April because any allowances and reliefs available to you will expire by that date. This doesn’t mean that you need to wait until the deadline to use them – you have a whole year to use them.
How can I use my personal tax allowance?
The first point of call is to speak to your financial advisor who will guide you on your personal allowances available and how to plan your investments around your different objectives. Tax-efficient pensions and Individual Savings Accounts (ISAs) are two of the most important options.
You can make a lump sum investment into either your pension or ISA before the 5th April 2022 to use your personal allowance for this financial year. If you have received a work bonus or have some savings that you want to invest tax efficiently this is a great way to invest your money to help you achieve your financial goals.
If you are a couple, you and your spouse can take advantage of each other’s ISA allowance, particularly if one of you has more financial resources than the other. That way, combined, you can invest (in a Stocks & Shares ISAs) up to £40,000 tax-efficiently each year.
Book a call with one of our financial advisers BEFORE 5 April to get sound advice on the best ways of maximising your annual allowance before the tax year end.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.
SJP Approved 15/02/2023