With the daffodils poking their heads tentatively through the soil, and the clocks due to go forward an hour in a few weeks’ time, spring is clearly on the horizon. Shaking off the shackles of a long, cold, dark winter, many people feel motivated at this time of year to declutter, give their house a thorough clean and get ready for the year ahead. It is also a good time to review and tidy up your finances and make sure it is not just your home that gets a spring clean for the year ahead.
Now, we must warn you, what follows does involve a bit of ‘tax’ and we appreciate that ‘tax’ may not be on your list of “fun blog topics”. However, at this time of year, knowing about the various tax allowances and reliefs available to boost savings and reduce the amount of tax paid is important, so we think you should indulge us.
For many people, tax appears to be a one-way street. Every time you get paid, a sizeable chunk of your pay packet gets whisked off to the Government and, to rub salt into the wound, VAT is added on to the price of most things you buy. Aside from the fact that the Government spends the tax it collects to pay for things most of us use, such as roads and parks, the tax system can seem a little bit “take, take, take” on the Government’s part.
However, each tax year, which runs from 6th April to 5th April in the UK, the Government provides individuals several allowances and tax reliefs.
People are generally familiar with the ‘personal allowance’; this is the amount someone can earn each tax year before they pay any tax. Currently the standard personal allowance is set at £12,500 and under the Pay As You Earn (PAYE) system, the personal allowance is spread across the year and offset against what you earn. However, not so well known is that, if you are a basic rate taxpayer and your spouse has no income, they can transfer part of their personal allowance to you, thereby reducing the amount of tax you pay.
There are also allowances available when it comes to savings which are often overlooked. Take, for instance, the Lifetime Individual Savings Account (LISA) which is available to people under 40 years old and designed to help first-time homebuyers get on the property ladder more quickly. The Government allows LISA holders to put away up to £4,000 each tax year and pays a 25% bonus on whatever they have saved. Being March, there is still time to set up a LISA to benefit from this tax year’s allowance.
Allowances also exist to encourage you to save into pensions; tax relief on contributions is provided by the Government at your highest rate, and your pension investments grow tax-free. When you choose to access your pension up to 25% of it can also be taken tax free.
Something that is increasingly relevant for many people is the tax relief the Government provides if someone has to work from home, including because of the COVID-19 pandemic. Many thousands of people who are, or have been, working from home over the last year qualify for this, but are simply unaware it exists.
Now, obviously, none of this is a secret. There is a huge amount of information on LISAs, ISAs, pensions, married couples’ allowances and tax relief readily available on the internet if someone is inclined to look. However, if they are unsure about finance, have never had any financial education or simply find money matters a bit scary, there is every possibility the “getting” bit of the tax system could pass them by.
That is why Better with Money provides financial education in the workplace. Working with employers who understand the impact personal finance can have on employee wellbeing and happiness, we bring money matters to life in an interesting and accessible way. We provide employees with the financial knowledge and tools to help them develop a better relationship with money and ensure that, just because a subject is taxing, they do not miss out on opportunities which can make their money work better for them.
If you would like to find out more about the courses Better with Money provides, get in touch.