Most of us know that we should have savings. So, do our best to do so. Having the effort to save up some money, the last thing you need is for some of the interest you accrue to go to the taxman. Fortunately, there are plenty of tax-efficient ways for you to save.
Individual Savings Accounts (ISAs)
ISAs have been available since 1999. There five main types. Including Wealthify stocks and shares ISA, cash ISAs, Help to Buy ISAs, Lifetime ISAs and innovative finance ISAs. Which is right for you, depends on your circumstances and how you want your funds to be held or invested.
For example, the Help to Buy ISA is only an option for first-time buyers, but the other ISAs are available for anyone aged over 18. Before investing you will need to do a little additional research to work out which ISAs you could use. For the 2019/20 tax year, you are able to save up to £20,000 a year using ISA. The interest or dividend earned is tax-free.
The UK government wants to encourage everyone to save for their retirement. So, they offer tax relief on pension contributions. How you get this tax relief varies. Some people pay a smaller tax bill or the amount that is paid into their scheme is increased.
Importantly, you can benefit from tax-free interest on some pension plans, even if you are a non-taxpayer. If you have not already done so, it is well worth finding out more about this form of tax-free saving.
National Savings and Investments (NS&I)
Periodically, the NS&I offer special bonds. Often, the interest accrued on these is tax-free. So, it is well worth your while keeping an eye out for these. The level of interest paid is usually attractive. Although to be able to fully benefit from these rates you will normally have to tie your funds up for a few years, at least.
Putting some of your spare cash into Premium Bonds is worth considering. However, you do not get paid any interest. Instead, every bond you own is put into a prize draw that takes place, every month. Anything you win is free of UK Income Tax and Capital Gains Tax.
They are not right for all people but are still an option that is worth looking at. You can find out more about how they work and find out if they are suitable for you by clicking here.
Make full use of each person’s personal savings allowance
For the 2019/20 tax year, each person can earn up to £1,000 in interest without having to pay tax. If one member of the family has savings that accrue interest that takes them over that limit, it may be wise for them not to build up any more savings in their name. Instead, the spare cash the household has can be channelled into accounts that are held by other members of the family. This approach to saving may not suit every family, but, it is certainly worth considering doing this.
This feature was created in collaboration with Wealthify.