What are the best savings options during Covid-19?
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With all the uncertainty of last year, I haven’t reviewed my finances or carried out any of the arrangements I usually make in terms of ISAs and pension contributions. However, I have been able to maintain my income and have spent less than usual, so have more to put away for a rainy day. What do you think are my best options at the moment?
Matthew Beck of Smith & Pinching responds:
We have found that many people have delayed making financial decisions over the past year because of the pandemic. It is important, however, that you don’t miss out on the tax-efficient opportunities that are available to you in the current tax year, which comes to an end on April 5.
You ask what are your best options: I would only be able to answer that by understanding every detail of your financial situation, including your needs, your goals, your preferences and your attitude to investment risk. When we advise clients, we take all those factors into consideration to ensure that our recommendations are suitable for you. We build a specific financial plan that is tailored to you and then monitor and review that to keep it on track.
Having said that, ISAs form the bedrock of many clients’ investment strategies. You have an annual ISA allowance of £20,000 which can be used for Cash ISAs, Stocks & Shares ISAs, Lifetime ISAs or a mixture of them. Income and gains on ISA savings and investments are free of tax for as long as they are in your ISA, and there is no tax to pay when you withdraw from them.
Pension contributions continue to be a tax-efficient way to put money aside for your future, with contributions attracting tax relief. Most people have an annual allowance for contributions of £40,000 (although tax-efficient personal contributions can’t exceed your earnings). Particularly high earners and those who have already started taking flexible benefits from their pension fund will have a lower annual allowance.
There are other tax allowances that you may wish to consider, depending on your specific circumstances, including the Personal Savings Allowance and the Dividend Allowance.
I recommend that you take independent financial advice – ideally from a Chartered Financial Planner – as early as possible if you are looking to make the most of the available allowances: transactions with ISA providers and pension companies take a while to process and the current lockdown may make things slower than ever. Also, due to the Easter Bank Holiday weekend, the last working day this tax year is Thursday April 1.
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Any opinions expressed in this article do not constitute advice. They assume the 2020/21 tax year and may be subject to change. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk