The 5 April 2023 will see the end of another tax year.
While SAIL’s recommendations already put you in a good position, there are other savings tips you can utilise in your personal capacity to best plan for retirement and optimise your take home income.
Know your limits
Each year you can can invest into a tax-free savings account. For the 2022/23 tax year, invest up to a maximum of £20,000. This can be in a cash ISA, a stocks & shares ISA, an innovative finance ISA, a Help to Buy ISA, a Lifetime ISA or a mixture of all of them.
So, to use up your allowance, you could put:
- £10,000 into a cash ISA
- £5,000 into a stocks and shares ISA
- £5,000 into an innovative finance ISA
Cash ISA
A cash ISA is a type of savings account that lets you earn interest on your savings without paying tax. You can usually access funds from this ISA at any time during the tax year, but your deposits are capped at £20,000 in any one year. Note: if you access your funds then you cannot reinvest those same funds if you have exceeded your limit for the year.
Stocks & Shares ISA
A stocks & shares ISA is very different to a cash ISA. With a stocks & shares ISA you’re investing in financial products such as corporate and government bonds, shares and funds. While the return on your investment can be greater than the Cash ISA, the value of your investment and the income derived from it can go down as well as up in a Stocks & Shares ISA and you may get back less than you originally invested (we recommend getting good investment advice).
Help to Buy ISA
If you are saving to buy your first home you can use a Help to Buy ISA and the Government will boost your savings by 25%. So, for every £200 you save, receive a government bonus of £50 and still earn interest on the funds in the account.
In your opening month you can deposit £1,200 into the account, but every month thereafter your contributions are capped at £200. The maximum government bonus you can receive is £3,000 over the lifetime of this account.
As a Help to Buy ISA counts as a type of cash ISA, it means you cannot pay into any other cash ISA in the same year you pay into a Help to Buy ISA.
Innovative Finance ISA
Innovative Finance ISAs help you earn tax-free interest on peer-to-peer lending.
Peer-to-peer lending matches up investors, who are willing to lend, with borrowers, who could be individuals, businesses, or property developers. And because you’re cutting out a bank by investing your money through an online portal – known as peer-to-peer lenders – you tend to earn higher rates of interest than a traditional savings account.
Lifetime ISA (LISA)
Anyone between the ages of 18 – 39 can open a Lifetime ISA. You can put in up to £4,000 each year, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.
You can open and contribute to a Cash ISA and a Lifetime ISA in the same tax year. You’re also allowed to have a Help to Buy ISA and a LISA, though you can’t get the first-time buyers’ bonus on both. But you could get the Help to Buy ISA bonus for a home and then use the LISA and its bonuses for retirement.
You can take some or all of your cash out of a LISA before age 60 even if you’re not buying a property. However, it’ll usually cost you – so it’s best to try to only use the LISA if you’re sure the cash is for one of the two defined purposes – first-home purchase or retirement.
You don’t pay the withdrawal charge if you die or are terminally ill.
Limited company Pension Contributions
When your company contributes to your pension, both you and the company can benefit.
In your company, contributions are tax deductible and reduce your corporation tax. In addition, unlike salaries, you don’t have to pay employer National Insurance (15.05%). Provided you don’t need to use the cash now (you can only access the funds on retirement), pensions are a brilliant way to get money out of your company.
Contact the SAIL Team for further information on ISA accounts or to be put in touch with our recommended IFA consultants who can help you best structure your investments.