Act early or you could miss out on tax year end!
The end of the 2022/23 tax year is fast approaching, and the time to act is now. Do more with your money today by making sure you’re fully taking advantage of the tax allowances available.
The tax year ends on April 5th, just two short months away, and it may take time to sort through your affairs, speak to an adviser, or make investments. Those who act early also benefit from potentially being invested for longer. Waiting until the last minute may mean you miss out on compound growth from being invested in the market earlier.
Use your Pension allowance
For the majority of long term investors, retirement is the goal, and a Pension is the vehicle.
Your Pension annual allowance in the current tax year is usually 100% of your salary or £40,000 – whichever is lower. You’ll typically get at least 20% tax relief on eligible contributions intoa Pension. This is a tax efficient way to do more with your money, as you pay tax but your Pension provider claims it back from HMRC.
If you are in a position to do so, consider using up this allowance. Your money then has the potential to grow in an investment, meaning you’ve benefited from tax savings as well as potential investment growth. That’s why it could make sense to use up allowances now rather than on the eve of tax year end, as your money has more time invested in the markets and potential growth opportunities.
Another reason you may want to think about investing in a Pension right now is due to the high rates of inflation. Cash left in the bank, or even in a Cash ISA, may have less growth potential when interest rates are lower than the inflation rate. For example, when the Bank of England’s interest rate is currently set at 4%, but inflation is at 10.5%. Investing for the long term in a Pension may offer a way to beat inflation, as your money has the potential to grow over many years when invested in an appropriate Portfolio.
The Pension annual allowance can be carried over, allowing you to use up any unused allowance from the three previous tax years, as long as you held a Pension in those years. Speak to a financial adviser if you need any assistance with investing your Pension allowances.
Your Pension allowance will start again on April 6 for the 2023/24 tax year, once again you’ll be able to invest 100% of your salary or £40,000 depending what is lower. You’ll benefit from at least 20% tax relief, and using this allowance up early in the new tax year will mean your money has more time to benefit from being invested.
Use your ISA allowance
The annual ISA allowance is £20,000 in the 2022/23 tax year, and it is a case of “use it or lose it” for this allowance. Don’t miss out, invest today.
You won’t pay Income or Capital Gains Tax on the growth you earn in an ISA, and over time you can compound this wealth to support a range of goals. An ISA may be more suitable for medium to long term goals such as school fees for your children. All True Potential investments are medium to long term.
Given the current high inflation levels, you may want to think carefully if you are invested in a Cash ISA. Low interest rates aren’t going to beat high inflation, so your money may be growing less than the price increases in shops. For example, the Bank of England’s interest rate is currently set at 4%, but the inflation rate is currently 10.5%.
A Stocks & Shares ISA over a five year plus period has the potential to offer returns that beat inflation as the investment growth won’t be based on a fixed interest rate, however this will depend on the performance of the Portfolio in which it is invested. However, growth in a Stocks & Shares ISA can take time, whereas a Cash ISA may be better suited for shorter term goals.
Use this year’s allowance if you can, and start again with a fresh £20,000 allowance for the 2023/24 tax year from April 6. Using this allowance at the earliest opportunity may allow more time for investment growth.
Speak to your financial adviser
Using your allowances should be your priority, and if in doubt speak to a financial adviser today to make sure you are well prepared to do more with your money before April 5.
Your circumstances will be unique to you, and by going through your personal finances with an adviser there may be other ways you can benefit before tax year end.
If you can’t use your full allowance, invest what you can before April 5, and keep in mind that with impulseSave® in the True Potential app you can invest into an existing ISA right up until the end of tax year end.
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With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.
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