Let’s talk about tax efficiencies

There are two certainties in life, death and taxes.  You can’t do much about death, but you can manage your finances to ensure the best use of your tax allowances.

The end of the tax year is just a couple of weeks away but there is still time to make use of your allowances.

A UK tax year runs from 6 April to the following 5 April and all adults get a series of allowances that let them earn interest on savings and certain income without paying any tax.

Once the tax year is over you can’t carry any unused ISA allowance to the next 12 months, so once the allowance is gone, it’s gone.

Here are some of the allowances, savings products and tax wrappers that you can use to earn money and interest tax efficiently each year.

Each tax year, every UK adult gets an allowance, currently £20,000, that they can earn interest on through an ISA tax-free. This money can be spread between a cash ISA, that pays a set rate of interest, or a stocks and shares ISA that invests in funds and shares. You can also put money into a Lifetime ISA, designed to help you save for your first home or for retirement.

This isn’t the only tax-efficient savings product.

You can save for your retirement with a pension and can currently contribute up to £40,000 for the 2017/2018 tax year and any growth within the product is earned tax-free. The allowance will be the same for the 2018/2019 tax year. You also get tax relief from HM Revenue & Customers (HMRC) on your contributions.

If you are a basic rate taxpayer, you get 20% tax relief on your pension contributions, and if you pay tax at a higher rate, you can claim higher rate tax relief from HMRC.  Tax is paid at the point that you start drawing income from your pension pot when you come to retire. In some circumstances inheritance tax may be payable on death.

Any interest earned on dividends from shares in a pension or ISA is tax-free, but If you earn dividends from income or shares outside of these wrappers, there is no tax to pay on the first £5,000 for the 2017/2018 tax year. This is being reduced to £2,000 for the 2018/2019 tax year.

HMRC also offers tax relief to encourage individuals to invest in companies through a number of venture capital schemes.

You can get tax relief when you invest in small UK companies and social enterprises that qualify for venture capital schemes.

For example, you can invest up to £200,000 in Venture Capital Trusts and up to £1m annually in Enterprise Investment Schemes and get 30% income tax relief.

All these products have different risks so it is worth speaking with a financial adviser to work out which is best for you and to make sure if you are able to make use of your allowances that you use it rather than lose it.