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Tax Year Deadlines: Make the Most of Your Allowances with Pensions and ISAs

With not long to go now until the end of the 2020-21 tax year, it’s important to take the time to get your finances sorted and ensure you’re making the best use of your tax-free allowances. The deadline is on the 5th April – so make sure you’ve got everything organised before then.

The nice thing about making the most of your tax-free allowances is that these are also just great ways to save and invest money to help meet your financial goals. Plus, you can make use of government schemes to maximise your savings even further.

At Face to Face Finance, we’re all about sensible and efficient financial planning, so that sounds good to us! Read on to find our 3 top tips for how to beat the tax year deadline and make the most of your allowances with pensions and Individual Savings Accounts (ISAs).

1)    Benefit from extra money from the government using ISAs and pensions

Did you know that your personal pension contributions are topped up by 20% tax relief? This means it only costs you 80p to save £1 in your pension. This happens automatically when you pay in to a pension – making it worth looking at your pension contribution and whether you could afford to save even more.

If you’re a higher or additional rate tax payer, this tax benefit is even bigger, so make sure you claim it on your tax return.

Another government scheme you could take advantage of is the Lifetime ISA. You could get up to £1,000 per year in the form of a 25% government bonus on everything you save. You can get the bonus on savings up to £4,000 per year, and you’ll get it every year up until you turn 50. It’s definitely worth taking advantage of this bonus if you do have money to save but bear in mind that you’ll only get this bonus if you withdraw the money to either buy your first house or when you turn 60 – so it’s a long-term investment for most.

2)    Use up your tax-free allowances before the end of the tax year

The government set specific allowances that you can use to save without paying any extra tax on that money. For ISAs, that allowance is set to £20,000, and for pensions it’s £40,000. This means you can put aside up to that limit each year in those forms of savings. So, if you’re still under that limit, it’s worth taking a look at your finances and seeing if you could save more.

With ISAs, the £20,000 per year figure is lost if you don’t use it each year – you can’t roll it over to the future. So, if you’ve got any unused allowances and money going spare, it’s worth looking at investing it in ISAs.

The £40,000 figure for pensions contributions includes money put in by you and your employer in that tax year. But, you can carry this forward for up to 3 years, so you may have some more allowance left if you’ve saved less in previous years. As we mentioned before, you’ll get tax relief on the money you invest in your pension, so it’s worth looking into this.

If your income is very high, you may have a restricted allowance, so make sure you discuss this with your financial consultant.

3)    Choose the right ISA product for your needs

There are a number of different ISA products on the market. We’ve already mentioned the Lifetime ISA, there are also Cash ISAs and Stocks and Shares ISAs.

For short term savings, Cash ISAs are a reasonably good option. However, as current interest rates are extremely low, they’re not a very efficient way of saving money, and inflation could end up wiping out the effects of the interest earned anyway! If you think you might need access to your savings quickly, they can be financially worth it.

Stocks and Shares ISAs are a far more efficient savings product over the longer term. With this form of ISA, you usually invest your money in funds, and if they go up, your policy value will do too. There’s the possibility of far higher returns with these products than Cash ISAs – although you do obviously run the risk of losing out if the stock market goes down. The returns are rarely guaranteed, so if it sounds too good to be true, it probably is.

Need some help with tax planning and your investments? Speak to the experts at Face to Face Finance. Find out about our investment planning here, or get in touch by clicking here.

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