When you’re setting goals for the future, it can be hard to find the path between the place you are now and the place you want to be.
The answer usually lies somewhere in the relatively mundane but important matter of planning. After all, the biggest steps you take in life tend to begin with small steps in the right direction.
This certainly applies to any aspirations or objectives that involve money. Whether you’re saving for a new home deposit, considering starting a family, looking to set up your own business or making other plans for the future, you’re likely to start with ensuring you have solid financial foundations.
That can entail lots of small steps. One is to take advantage of every opportunity open to you, especially when it comes to tax.
Take advantage of pension reliefs
FOMO – or fear of missing out – can be a useful motivator. Yet it’s 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 fund for emergencies (or ‘rainy-day fund’) is essential, other options are worth exploring when it comes to medium and long-term plans such as saving to buy a house or planning for a baby.
“For the younger generation in particular, it’s important to understand where the most advantageous places are to put your money and to make use of a range of vehicles and tax opportunities that fit your objectives for the future,” says Tony Clark, Senior Propositions Manager at St. James’s Place.
For instance, the first port of call is usually an Individual Savings Account (ISA), often starting with a Cash ISA, then opening a Stocks & Shares ISA, too. But pensions also come with tax relief and the benefits of this have a bigger impact the further away from retirement you start paying into them.
“Most of us are familiar with ISAs but are perhaps not fully on top of the benefits of pensions, especially if retirement is a long way off and saving for a home and building a rainy-day fund is a priority,” says Clark.
“But saving early into a pension and using the reliefs available will make such a big difference to your later life that your older self will feel very grateful to the younger you.”
Don’t wait until the end of the tax year
Maximising your tax allowances will make your money go much further. The most obvious of these is the ISA allowance, which 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.
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’. That makes it worth planning ahead to maximise the benefits, says Clark.
“The tax-year-end deadline is there for the allowances to be used, but it’s just a deadline – you have a whole year to use them.”
Such allowances can make a real difference to your chances of reaching your medium and long-term goals.
Taking advice takes the pressure off
This can all sound much easier than it is, of course, especially at a time of so much uncertainty and with so much 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 out on potentially valuable tax benefits.
“You’ll have short, medium and long-term goals, so an adviser will guide you on the allowances available and how to plan your investments around your different objectives,” Clark explains.
They will also ask the questions that will help you identify your objectives, what you want from life and how to get to where you want to go.
“As you make your way through life and circumstances change, you can start to adapt and build on those plans,” says Clark.
“It’s vital to make the most of the allowances available to you and to diversify across different tax-efficient vehicles.”
Don’t let your tax allowances go to waste. Get in touch with us today.
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.
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.