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This article is for general guidance only and is not financial or professional advice. Any links are for your own information, and do not constitute any form of recommendation by Saga. You should not solely rely on this information to make any decisions, and consider seeking independent professional advice. All figures and information in this article are correct at the time of publishing, but laws, entitlements, tax treatments and allowances may change in the future.
Life is busy and, despite our best intentions, lots of us are prone to procrastinating when it comes to organising our finances.
As the 2024/25 tax year is about to get underway, you may be kicking yourself if you weren’t organised enough to take advantage of the allowances you were entitled to last year.
But you don’t have to miss out again. Get a head start - early action in this tax year could help you save hundreds or even thousands of pounds.
You might be in the habit of topping up any unused ISA allowance right at the end of the tax year. However, you might get better financial rewards by taking prompt action at the start instead.
The benefit of moving your money into an ISA as soon as possible is that any interest is protected from tax from the outset and has longer to grow over time.
As the old adage goes: ‘it's time in the market, not timing the market’ that matters when it comes to putting your money to work. Trying to work out the best time to have your money invested or in savings is almost impossible to predict.
Laith Khalaf, Head of Investment Analysis at AJ Bell, says some investors unflinchingly invest their ISA allowance as soon as it’s available every year, on 6 April.
“By topping up an ISA on the first day rather than the last day of the tax year, you basically get an extra year of your money being sheltered from tax,” he says.
Let’s say you plan to save £10,000 into an ISA each year and received hypothetical returns of 5% every 12 months.
If you paid in that £10,000 at the end of each tax year, after five years you’d have a pot worth £55,385. But if you’d paid that money in at the start of the year, you'd end up with £58,218 – almost £3,000 more*.
Of course, not everyone has £20,000 sitting around to max out an ISA instantly. In this case, you may want to consider paying in a regular sum as soon as you can afford it each month to give yourself an even flow of investment throughout the year.
The good news is that from 6 April 2024, you’ll be able to pay into multiple versions of the same style of ISA each tax year (although still only up to the allowance of £20,000), rather than being locked to a single type – i.e. one cash ISA and one stocks and shares ISA.
This new flexibility means you can, for instance, open multiple cash ISAs in a year, so you can lock away some at a fixed rate if you know you’re not going to need it in the short term, and have a little more available in an easy-access account for emergencies.
While this is only a small change, it allows you to make plans early with a bit more clarity over what you can do with your cash throughout the year, rather than keeping it back ‘just in case’ as you won’t know what might happen during the next few months.
* Figures compiled assuming no initial investment, annual £10k deposits and growth of 5% a year. There’s no guarantee of these returns, and you might get out less than you put in as the stock market can rise and fall.
If you think you might need to take money out of an ISA, but plan to put it back shortly after, consider opening a flexible ISA.
This allows you to withdraw money and replace it without losing the tax-free status. For example, if you put £15,000 in an ISA and want to withdraw £10,000 – perhaps for an emergency payment - with a flexible ISA you could then pay £10,000 back in again in the same tax year, once you’d sorted out your finances.
With a non-flexible ISA, once you’ve put in £15,000, you’ll only be able to put in a further £5,000 (up to the current allowance of £20,000) – no matter what you’ve withdrawn over the year.
Flexible cash ISAs are offered by many high street banks and savings providers, but not all offer them so check carefully. With stocks and shares ISAs, again some providers offer flexible options but others don’t.
Each tax year you can give away up to £3,000 without having to worry about potential inheritance tax (IHT) complications, in addition to smaller gifts. You can also give away £5,000 to a child, £2,500 to a grandchild, or £1,000 to anyone else in the year of their wedding.
Many who like to be organised with their finances will give the money away as soon as the tax year begins, to ensure the recipient gets the full benefit of the gift.
Bear in mind that most people do not need to pay inheritance tax, so only give away money for IHT purposes if you think it’s likely your loved ones will face a bill when you die.
The dividend allowance - the amount you can make on income from shares or investments - is halving in the 2024/25 financial year, from £1,000 to £500.
If you hold investments in an ISA, you won’t have to worry about Dividends Tax. But for investments held outside an ISA - perhaps in a general investment account (GIA) - you may end up paying tax earlier in the year.
This is another reason to put as close to the £20,000 savings allowance into an ISA as soon as you can.
You cannot just transfer investments from a GIA into an ISA, but you can use a process called Bed and ISA if the two accounts are on the same platform.
This allows you to sell investments in your GIA and immediately buy them back within your stocks and shares ISA, if you have the allowance to do so.
Another option is to take advantage of a spouse or civil partner’s ISA allowance. Between the two of you, £40,000 could be put away in ISAs each year and you won’t have to worry about Dividends Tax, Capital Gains Tax (CGT) or Income Tax on growth or withdrawals.
Interest rates have risen sharply in the past three years, so the good news for savers is that you should be getting a better rate on your money (and if you’re not, you need to find a new home for your cash).
The bad news is that if you have a healthy amount in savings, you’ll likely be paying more tax.
The personal savings allowance is £1,000 a year (an amount that has been frozen since 2016) for basic-rate taxpayers, but it’s £500 for higher-rate taxpayers (those earning more than £50,270 a year or £43,663 in Scotland) and nothing for those on the additional rate (earning over £125,140).
Interest earnings above the allowance will be taxed at your usual income tax rate.
Beyond maxing out your ISA, another way to avoid the savings tax includes paying into Premium Bonds (where the prizes can be won tax-free).
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The personal allowance - the amount you can earn before you start paying income tax - remains at £12,570 in the 2024/25 tax year, and is frozen until April 2028.
It is possible your income will rise this year to stay on top of inflation, so you may find yourself with a larger tax bill. Bear in mind the full State Pension rises to £11,502 a year from 6 April, so this will use up a significant chunk of the allowance.
If you are retired and receiving income from a private pension, you could consider withdrawing more money from an ISA rather than a pension to reduce your tax bill. This is because you don’t pay any tax on money you take out of an ISA.
You could also consider paying more money into a pension. Those still working can pay 100% of their earnings (up to a maximum of £60,000) a year into a pension and get tax relief on those contributions, so if it’s possible for you to max this out, sooner is better.
However, if you have already made a taxable withdrawal from your pension, you’ll likely have a reduced allowance of £10,000 (this is called the Money Purchase Annual Allowance, or MPAA).
Maxing out your pension allowance as much as possible should certainly be considered by those approaching retirement, says Becky O’Connor, Director of Public Affairs at PensionBee.
“Being motivated to make the most of your pension allowances can give your retirement fund a massive boost, particularly if you are in the years leading up to retirement. That’s because it’s not long to wait until you can access that money again,” she adds.
Similar to placing money in an ISA, the sooner you can start putting money into your pension in the tax year, the longer it will have to grow – so putting off the task of bolstering your retirement pot, especially if you’re going to hit the £60,000 threshold for the year, can cost you in the long run.
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