As the end of the tax year approaches and more time is being spent at home, now is a great opportunity to spring clean your finances for the year ahead.
Here are our five end of tax year tips your future self will thank you for…
1. Open an ISA from the palm of your hand: If you don’t already have one, consider opening an ISA before the end of the tax year. It may sound complicated – but ISA just stands for ‘Individual Savings Account’ and is a savings or investment account that lets you save your hard-earned money, tax free. Each tax year you get an allowance of £20,000– an amount you can save or invest in that year without being taxed on the gains. You can split this allowance across different ISA products, including a Stocks & Shares ISA and Lifetime ISA, but if you don’t use it, you lose it, as your allowance doesn’t roll over into the next tax year. Opening an ISA with Moneybox is quick and easy, and with a few simple taps on your mobile phone you can open an ISA best suited to your goals.
2. Don’t miss out on free money: It may sound too good to be true, but one ISA actually gives you free money! If you’re saving for your first home, you can get up to £1,000 every tax year from the government by paying into a Lifetime ISA (also known as a LISA). Introduced to help first time buyers get on the property ladder sooner, the LISA is available to those aged 18-39 and offers a government bonus of 25% on top of your tax-free savings. You can save up to £4,000 per tax year into your LISA, giving you a potential bonus of £1,000 each year you save! If you think the Lifetime ISA is right for you, check out our market-leading Cash Lifetime ISA or our Stocks & Shares Lifetime ISA.
3. Start small, and sleepwalk into a habit: There are many simple ways to make saving and investing part of your everyday life. By starting with round ups or a small, regular deposit, you can set money aside without even thinking about it. You can then increase these deposits over time, or use opportunities such as a pay rise or a bonus to boost your savings and investments. The average Moneybox user saves £500 per year from our round ups feature alone. A small change that could make a big difference to your savings.
4. Start your relationship with compounding: The end of the tax year may already have you thinking about saving and investing for the year ahead – but be sure to turn those thoughts to actions! As the Chinese proverb states – the best time to plant a tree was 20 years ago, the second best time is now. The earlier you start investing, the more time your money has to benefit from the power of compounding. Compounding is the return you get on your original investment and the return you get on your return. Here’s a two year example:
Suppose you invested £5,000 and it grew by 7% each year. At the end of the first year, you’d have £5,350.
At the end of the second year, you’d have £5,725 – that’s an additional £375 return – because you made gains on your original £5,000 and gains on your return from year one. That’s a compound return.
So when you leave your returns to compound over time, your money can grow exponentially all by itself. As a longer term example – if you were to invest a £1,000 lump sum earning a 7% return aged 40, you’d have £3,870 when you’re 60. Start ten years earlier, at 30 and you’d have £7,612 – almost twice as much. Remember, these figures do not provide guarantees of future performance and do not include costs and charges.
5. Pay into your pension and get a free top up: With a large government tax relief on your pension contributions available each year, not paying into your pension is like missing out on free money. If you’re a basic rate UK taxpayer you’ll be eligible for 20% tax relief on your contributions. There is a cap on it, though. If you’re paying income tax you can usually only get pension tax relief on contributions up to £40,000 (annual allowance) or the level of your earnings if they are less than £40,000.
Did you know the Moneybox Personal Pension allows you to consolidate all of your old workplace pensions, track your progress, and make contributions directly into one pot – all from your mobile phone? Check out the benefits of the Moneybox Personal Pension.
Important – You only have until midday March 31 to open an ISA with Moneybox & until midday April 1 to contribute. Learn more about the Moneybox end of tax year timings.
Investing: All investing should be regarded as longer term (at least 5 years). The value of your investments can go up and down, and you may get back less than you invest.
Lifetime ISA: If you need to withdraw money for any reason other than your first home or retirement, you’ll pay a government charge of 25% on any sum you withdraw. The effect of this charge is you’ll lose the government bonus plus £6.25 per £100 you contributed.
Pension: Tax treatment depends on your individual circumstances and may be subject to change in the future. Moneybox cannot accept a pension you’re currently paying into, or any old pensions that provide guaranteed benefits when you retire.