Tax year end tips to make more of your money
| February 3, 2020
Time to read: 5 minutes
As we head towards tax year end on 5 April, here are some savvy savings tips. Of course, with the Chancellor’s UK Budget on 11 March some of this could change but, until then, these tax-friendly ideas can help you make the most of your money.
1.Save, tax efficiently
You’ve still got a few weeks left to make the most of this year’s tax-friendly ISA allowances.
You can put up to £20,000 this tax year into an ISA (Individual Savings Account), whether that’s in cash, stocks and shares or a mix of both. So if you have some money to save or invest, consider putting it into your ISA. You won’t pay tax on any potential gains from a Stocks & Shares ISA, or on any interest earned from a Cash ISA.
If you’re saving for children, they get their own Junior ISA allowance of £4,368 this tax year.
With Stocks & Shares ISAs your savings are invested so have the opportunity to grow over time. As with all investments they can go down as well as up in value and you could get back less than you paid in.
The UK Budget in March will confirm the next tax year’s ISA allowances effective from 6 April.
Find out more: Read our helpful What is an ISA? guide
2. Max the tax relief on your pension saving
Your pension is one of the most tax-efficient ways to save for your future thanks to tax breaks on your payments – normally at the highest rate of income tax you pay.
Saving more into your pension before tax year end could be a great way to boost your pension pot.
And with the tax benefits on pension payments, if you’re a 20% basic-rate taxpayer, every £100 into your pension costs you just £80.
Higher or additional-rate taxpayers can benefit from 40 or 45% tax relief, which means £100 into a pension can cost just £60 or £55. You may need to claim your tax relief back from HM Revenue & Customs (HMRC). Tax rates can vary depending on where you live in the UK, for example in Scotland and Wales.
Do be aware not all pension schemes work this way. With some, you get tax relief automatically if your employer takes workplace pension contributions out of your pay before deducting income tax. You get all your tax relief immediately and don’t need to claim anything extra if you’re a higher- or additional-rate taxpayer.
With some older pension schemes, you do need to claim all tax relief due through your self-assessment tax return or by contacting HMRC.
Read more on Gov.uk
Savings limit: You need to make sure you don’t save more than your annual allowance. You can normally contribute as much as you earn each year, up to £40,000, and get tax relief on your payments – and you can ‘carry forward’ unused allowances from the last three years. Please note that amount could be less if you’re a higher earner or you’ve started taking money from your flexible pension.
You can find out more in our tax guides.
3.Getting a bonus? Putting it into your pension could save you paying tax
It’s bonus season around now for many people. If you’re lucky enough to get a work bonus, you may have the option to pop it into your pension pot instead of paying income tax on it. Doing this could save you paying tax and sometimes National Insurance too.
It’s a tax-efficient way to boost your pension savings.
4. Get your tax-free personal allowance back
Most people get a tax-free personal allowance, which is £12,500 for the 2019-20 tax year. When your taxable income reaches £100,000, your personal allowance is cut by £1 for every £2 of your income and you lose it once your income reaches £125,000 (in the 2019/20 tax year).
You may be able to recover the personal allowance by reducing your income through making pension payments – that way you’re making tax savings and contributing more to your future at the same time.
5.How to get your child benefit back by paying more into your pension
Worth around £2,500 a year to a three-child family, child benefit is reduced by the High Income Child Benefit Charge when one parent’s income reaches £50,000. At £60,000, the tax charge cancels out the benefit entirely.
There is a way that you could get some or all of it back if your earnings are in this range.
Paying into your pension reduces what counts as your income. So, paying more into your pension could cut the tax charge and allow you to keep your child benefit. And you boost your pension saving at the same time.
Use the government’s child benefit tax calculator to work out if you’re affected by the tax and how.
Good to know: You can choose not to take child benefit payments if your earnings are over the £60,000 but you should consider filling in the child benefit claim form. This helps you get National Insurance credits which go towards your State Pension.
You can find out more in our tax guides.
Laws and tax rules may change in the future and your own circumstances and where you live in the UK will also have an impact on tax treatment. Information here is correct in January 2020 and shouldn’t be taken as financial advice.
Pensions and Stocks & Shares ISAs are investments and their value can go down as well as up and may be worth less than was paid in.
If you’re in any doubt about your options, you may wish to speak to a financial adviser. There will likely be a cost for this.