| Using your ISA allowance early increases potential tax-free growth opportunities | Pension contributions attract relief and may reduce higher-rate tax exposure | Early planning helps to optimise capital gains and Inheritance Tax allowances |
The start of the tax year offers the perfect opportunity to refresh your financial plans. Much like a spring clean, it’s a chance to review your goals, make use of new allowances and put good habits in place early.
Taking action now, rather than leaving things until the end of the tax year, can make a real difference. Planning early gives your investments more time to grow and allows you to make thoughtful decisions about how best to use the tax reliefs available to you.
Key allowances to consider this spring
Your ISA allowance – you can invest up to £20,000 in Individual Savings Accounts (ISAs) this tax year. ISAs remain one of the most tax-efficient ways to save and invest. Any growth within an ISA is free from Capital Gains Tax, Dividend Tax and Income Tax, and you won’t pay tax when you withdraw the money either. Stocks and Shares ISAs and Cash ISAs are available, with the former offering more longer-term growth potential. You can also invest up to £9,000 in a Junior ISA (JISA) for a child or grandchild. These allowances are valuable, but they don’t roll over. If you don’t use them during the tax year, they’re lost. Starting early makes it easier to take advantage of them without needing a large lump sum later on.
Strengthen your pension savings – the start of the tax year is also a good time to review your pension contributions. Pensions benefit from tax relief, meaning a £100 contribution typically costs a basic-rate taxpayer £80. Higher-rate and additional-rate taxpayers may be able to claim further relief through self-assessment. For most people, the Annual Allowance is £60,000 or 100% of earnings, whichever is lower. Making full use of this allowance where appropriate can help boost retirement savings in a tax-efficient way. Starting early can make it easier to spread contributions across the year.
Small contributions add up
You don’t need £20,000 ready to invest on day one into your ISA or thousands to pay into your pension. Many people choose to contribute gradually throughout the year. Setting up a regular monthly investment can help build momentum and turn saving into a habit. It can also remove some of the pressure of trying to decide when the ‘right time’ to invest might be. Regular investing also means you’ll be buying investments at different prices over time. When markets fall you may buy more units; when prices rise you may buy fewer. This approach, known as pound-cost averaging, can help smooth the effects of market movements and reduce the risk of investing a large amount at an unfavourable moment.
Time can make a difference
One of the biggest advantages of starting early is simply time in the market. The longer your money remains invested, the more opportunity it has to grow. This is largely due to compounding, where investment performance builds on what has already been achieved. Over long periods, this effect can significantly boost growth.
Other allowances to consider
– Review your Capital Gains Tax position – making use of your annual exemption where appropriate can help reduce the tax you pay on investment gains
– Think about Inheritance Tax planning – using annual gifting allowances can gradually reduce the value of your estate while helping to support family members during your lifetime.
It is important to take professional advice before making any decision relating to your personal finances. Information within this article is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored advice and is for guidance only. Some rules may vary in different parts of the UK.
