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Make your money work harder
10/21/2009
Alok provides some essential tips to help you become financial-savvy with your savings during these tough times.
1. Share assets with your partner
If you are married or in a registered civil partnership, you could potentially increase your tax free income by switching assets that produce income into the name of the person who has not used all of their personal tax allowance.
If you are both under 65 in the current tax year, you are each entitled to receive a tax-free personal allowance of £6,475 (2009/10).
Older savers have enhanced personal allowances. Those aged 65 to 74 have an allowance of £9,490, rising to £9,640 for those over 75.
2. Maximise your ISAs
Whilst having any kind of savings account is good news, if you have money sitting in a traditional bank or building society account the chances are you won’t be getting the best return on your savings, with the average saving rate only being 0.1%. This equates to £10 of interest for every £10,000 invested in a year! You can reap a better reward with a cash ISA, with certain banks and building societies paying up to 4% tax free.
Over 50s should take advantage of this month’s boost to tax-free savings in ISAs. Anyone born before April 6, 1960 can now pay up to £3,000 extra into their ISA, thanks to changes which came into effect on October 6.
For the 2009/10 tax year, once you are aged 18, you can invest £7,200 into your ISA (or £10,200 for those over 50), of which £3,600/ £5,100 for over 50s can be invested in cash. From April 2010, everyone will be able to save up to £10,200 per annum, of which £5,100 can be in cash. So although over 50s get a head start now, everyone below 50 will be able to catch up next year.
Those wanting to take a little risk with their savings can invest into a stocks and shares ISA, though guidance from an independent financial adviser should be sought.
With the world stock markets still relatively low, it is a fantastic opportunity to invest in your ISAs now.
Some experts argue that novice investors should begin with index trackers, low-cost funds that mirror the stock market, or global investment trusts. As there is so much to choose from, an independent financial adviser can help you make the right decision about where to invest your money.
3. Claim your refunds from the taxman
Benjamin Franklin wisely said: “In this world, nothing is certain but death and taxes,” but now is the time to make sure you aren’t paying too much to the taxman.
If you’ve recently stopped working or are planning to retire, you may be entitled to a refund on your income tax. If you were paying tax through the PAYE scheme, you can reclaim any overpayments due to you by completing a P50 form. Forms can be obtained from your local tax office or can be downloaded from www.directgov.co.uk.
Additionally, if you are a non-taxpayer you must make sure that you currently get interest on your savings tax free. For instance, if you’re on a low income and have savings with a bank or building society, you could be paying tax when you don’t need to.
Banks and building societies usually deduct 20 per cent tax from the interest they pay on most types of savings account, but if your total taxable income is less than your tax-free personal allowance, then you can register to get savings interest paid tax free by filling in a R85 form and sending it to your bank or building society.
4. Consider Investment Bonds
If you are a higher rate taxpayer an investment bond could also prove to be a financially savvy move. The underlying investments are taxed but then no further income tax is payable on distributions of up to 5% of the original sum invested each year. As HM Revenue and Customs treat this as a return of the original capital spread over 20 years with no tax liability, it is definitely worth considering if you’re planning a medium to long term investment, for example 10 years or more.
The types of investment bonds include distribution, with profits, guaranteed growth and unit linked. The money invested is used to buy units in a selected range of funds. Advantages include the bond is a packaged investment for income/growth and is relatively simple to operate. There are a wide range of geographical funds available so it is imperative that you talk to an independent financial adviser for guidance.
5. Maximise your Pension Contributions
Maximising your pension contributions for each tax year can also save you money thanks to the generous tax relief available.
Anyone, irrespective of earnings and including retired people and children, is eligible to pay up to £3600 per year gross into a personal/stakeholder pension. This would cost them just £2880 per year because they will receive 20% tax relief at source and higher rate tax payers are eligible to receive up to 40% in tax relief (subject to earnings criteria).
Again, talk to an independent financial adviser who will be able to analyse your particular financial situation and advise you of changes that will fit your individual circumstances, so that you can start to make some significant savings.
For further information on how we can help you with your personal or business planning needs, contact Dhanda Financial, 52 Dean Street, Newcastle upon Tyne, NE1 1PG, telephone 0191 255 8960, or email alok@dhandafinancial.com
