New year, new strategy? Be tax smart to keep your sights set on your financial goals

Retirement can seem a long way off when you’re in your 20s or 30s, but there are opportunities available now to make life much easier later on. And the turn of the year is the perfect time to make use of the available tax allowances, reliefs and exemptions – making your money work harder and giving you more options for the future.


If you’re a long way from retirement age, it’s understandable that your long-term pensions outlook might not be top of your priority list. However, by putting a bit of work in now, you’ll make life a lot easier for yourself in years to come.

There’s value in stepping back and considering all your financial goals in order to strike a balance across the different areas of your life, knowing that, step by step, you can get where you want to be. Here are some areas you may wish to consider…

Making smart tax moves

Making the most of valuable tax allowances, reliefs and exemptions can make a significant difference to your retirement pot – and seizing these opportunities is all the more important when the immediate economic outlook isn’t as bright as we’d all like.

But remember that you’ll need to use them while they’re available – in some instances it’s a case of ‘use it or lose it’. Get it right, though, and you can take pleasure in knowing that some smart tax moves will do a lot of heavy lifting for your retirement plans, giving you peace of mind now and in the future.

It starts with your pension. If you’ve taken out a pension plan with your employer, they’re likely contributing to it as well. Subject to certain limits, you’ll also get tax relief on your contributions – essentially meaning the government will increase the amount you pay into a pension.

For Basic Rate Taxpayers, every £80 that you pay into your pension, the government gives you another £20 in tax relief – win, win! Higher-rate taxpayers get 40% tax relief, so they have to pay in only £60 for every £100 contribution, while those on the 45% Income Tax rate can claim relief at 45%. (This is on the basis that any tax relief over the basic rate is claimed via their annual tax return).

Bargain hunting

Tony Clark, Senior Propositions Manager at St James’s Place Wealth Management, commented:

“Tax is usually seen as money being taken away from us, but a pension is a great way to save for retirement because the tax is coming back the other way and working to your advantage.”

There are other tax allowances in pensions that are worth using while they’re available. For example, if you’re able to use the full annual pension allowance – frozen in recent years at £40,000 – but fail to do so, you might miss the chance to carry forward any unused allowance from the previous three tax years. This carry-forward ability has the potential to turn a potential tax burden into savings that can be invested for the future.

The same applies to other ways of saving for retirement. With the annual allowance standing at £20,000, Individual Savings Accounts (ISAs) offer another way to use tax to help boost your later-life options.

These work differently from pensions, as the money you pay into a Cash ISA or Stocks & Shares ISA will generally be taxed beforehand. But with no Income Tax due on the interest or dividends you receive, maximising your allowance each year is a simple but effective way to make the tax rules work in your favour and bolster the investment you can expect.

There’s no time like the present

As we have seen, using the available tax allowances can help to create long-term financial security for you and your family – and now’s the perfect time to do so.

There’s also the current economic climate to consider, as inflation rises and household finances are squeezed. With much uncertainty in the short term, it’s wise to use the opportunities available now to lay solid foundations for later.

New year, new strategy?

Retirement can seem too far away for younger generations to think about using the various long-term savings options available. It’s not just about saving for retirement, though; it’s also about making sure that whatever happens over the coming years, you’ll have options open to you.

If putting together a plan with such a lengthy time horizon feels daunting, an experienced financial adviser is here to help. At Wellesley, we can help you check there are no gaps in your plans and that you’re not missing out on allowances and reliefs that can really benefit you.

Let’s start 2022 on the front foot – contact us today to arrange a no-obligation chat!

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

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