Use it or lose it: How tax allowances can help future-proof the finances of those in their 20s and 30s
Stephen Palmer of Cranwell Wealth Solutions reviews how to make the best of your tax allowances.
When you’re setting goals for the future, it can be hard to find a path from where you are now to where you want to be, but the biggest steps taken in life often begin with small steps in the right direction. In the case of future-proofing your finances, the first step is the mundane but important matter of planning.
Whether you’re saving for a new home deposit, considering starting a family, looking to set up your own business or making other future plans, you’re likely to begin by ensuring you have a solid financial foundation. An important step in this journey is taking advantage of every opportunity open to you, especially when it comes to tax.
Take advantage of pension reliefs
It’s all too easy to overlook the tax reliefs and allowances that can make a real difference to your financial health.
One trap that those in their 20s and 30s can fall into is to rely too heavily on cash savings. While an easily accessible ‘rainy day’ fund is essential, other options are also worth exploring when it comes to medium and long-term plans such as buying a house or planning for a baby.
For instance, the first port of call is usually an Individual Savings Account (ISA), often starting with a Cash ISA. However, pensions also come with tax relief. Saving into a pension early and taking advantage of the relief available will provide a bigger benefit to you albeit later in life.
Don’t wait until the end of the tax year
Maximising your tax allowances will also make your money go much further. The ISA allowance is the most obvious of these. It allows you to put up to £20,000 into an ISA in the current tax year without paying any tax on the interest or profits.
There is also the Personal Savings Allowance, where 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).
Such allowances can make a real difference to your medium and long-term goals. However, 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.
Taking advice takes the pressure off
This can make it sound much easier than it is given how busy people are, particularly in times of such uncertainty. It often feels like there is an overwhelming amount to do now, let alone in the future.
Speaking to a financial adviser is a good way to take the pressure off and make sure you’re not missing the opportunity of valuable tax benefits. An adviser will help you set your objectives, discuss how best to plan your investments and offer advice on how to make the most of the allowances available.
If you don’t want your tax allowances to go to waste, get in touch today.
The value of an investment with St. James’s Place will be directly linked to the performance of the fund selected and may fall as well as rise. You may get back less than the amount invested.
An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA or a deposit with a bank or building society.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.
Cranwell Wealth Solutions, Wealth Management Practice with branches in Heathfield and Uckfield.
01435 866 101