The Benefits of Saving Regularly

The Benefits Of Saving Regularly

There are often two types of investors. There are investors who already had money in their pocket, and now wish help to invest it somewhere. Alternatively, there are investors who didn’t have any money beforehand, but now they do, they want to build up their pot of money.

While both investors are aware of the benefits of saving, not many understand the benefits of saving regularly. What’s more, many investors don’t fully appreciate the benefits of committing to saving regularly.

The Benefits

Committed Savings:

By committing to saving regularly, perhaps a set amount every pay check, you are much more likely to build up your money, rather than spending it. Unfortunately, some saving accounts are easy to access, meaning the temptation to dip into them should you wish to can be tricky to avoid.

Stock Market:

As you’re not investing your money into the market at a single point, it removes the risk of getting the timing just right. However, using the stock market for your regular savings applies to those wishing to save for the medium and long term.

The ups and downs of the stock market are one reason why investors are afraid of it. However, the approach is known as ‘pound cost averaging’ is one to consider. Pound cost averaging is the approach of investing small amounts very regularly.

As the name suggests, it is the cost you spend buying stocks which average out over time. It helps an investor instill good behavior because you’re establishing a routine. This routine enables investors to consider the stock market as an ongoing activity, rather than one which relies solely on gain or is affected by a temporary loss.

How to Save:

For those wishing to save for the long term, choosing to save regularly is highly effective. You first need to assess why you’re saving. Often, savers decide to put money aside for their children, which may start from the moment their child is born until they leave for university at 18.

Tax Efficient:

Whatever your saving goals are, there is a variety of ways to achieve it. One such way is an ISA. An ISA is an Individual Savings Account, which offers tax-free interest payments. It means, by choosing this, you could get more for your money. However, there are limits, known as an ‘ISA allowance.’ This currently stands at £20,000 per annum

If you’re saving for a medium (5-10 years) or long-term goal (10+ years), choosing stocks and shares ISA could prove more beneficial.   A stocks and shares ISA is very different from a typical cash ISA.  Rather than merely paying money in, you’re investing in assets that have greater potential for growth compared to a cash isa account. Although cash ISAs are relatively secure, investing in stocks and shares does have varying degrees of risk associated with them.

Conclusion

Saving regularly can be the difference between affording the lifestyle you want, and not. A great example is the retiree who bought a Mercedes 2-seater sports car after leaving the world of work behind for the last time. How did he manage to do this? Simply by committing to saving a regular amount each month into a stock market investment unit trust. It took 20 years to achieve this goal, but by ensuring he didn’t miss a single payment, he could treat himself in cash to the car of his dreams. This is what long-term saving is about: enabling you to afford the luxuries you want after you’ve worked so hard all your life.

TKV Financial Management can advise you on the best saving plan for your situation. Contact us to arrange a meeting.

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How Can I Reduce the Amount of Tax I Pay on My Investments?

How Can I Reduce the Amount of Tax I Pay on My Investments?

Everyone’s searching for ways to pay as little tax as possible in order to keep more of their hard-earned money and investments are often a great place to start. So in this post, we’re going to guide you through a couple of strategies to help you pay less on your own investments.

Transfer Your Investments to a Spouse

One strategy that you can use to lower the amount of tax you pay on investments is to transfer them to a spouse. Married couples often have their investments and savings in joint names, but there are times when shifting investments around could actually be more tax-efficient.

However, this does mean that the investments will be in your spouse’s name and they will be given full control of your money, so don’t do this unless you are extremely confident and trust your spouse with that responsibility.

Let’s use an example.

Mary works at a well-paying job that puts her into a higher tax rate band, but she also invests her money into shares. She wants to dispose of her shares in a company, resulting in a potential capital gain of £40,000.

Since she’s in a higher rate tax band, this subjects her to 20% tax on her capital gains. After the allowance of £11,700 during the 2018/2019 tax period is dedicated, the chargeable gain is £28,300. This means she has to pay £5,660 in capital gains tax due to her higher tax band.

Client 1

Gain £40,000.00
Allowance £11,700.00
Chargeable Gain £28,300.00
CGT Rate 20%
CGT Charge £5,660.00

That’s quite a hefty amount of tax to pay, so let’s imagine she uses this strategy and transferred half of her shares to a spouse who is a basic rate taxpayer.

This means that the chargeable gains would be £8,300 for both her and her spouse after allowance deductions on capital gains tax. This means Mary would only be paying 20% of £8,300 in capital gains tax and her spouse would be paying 10% of £8,300. This is a total of £2,490 – a saving of £3,170.

Client 1 Client 2
Gain £20,000.00 £20,000.00
Allowance £11,700.00 £11,700.00
Chargeable Gain £8,300.00 £8,300.00
CGT Rate 20% 10%
CGT Charge £1,660.00 £830.00
Saving £3,170.00

Even if her spouse was also in a higher rate tax band, it would still be £3,320 total and a saving of £2,340.

Client 1 Client 2
Gain £20,000.00 £20,000.00
Allowance £11,700.00 £11,700.00
Chargeable Gain £8,300.00 £8,300.00
CGT Rate 20% 20%
CGT Charge £1,660.00 £1,660.00
Saving £2,340.00

It’s worth mentioning that you can also transfer up to 10% of your personal income tax allowance to a spouse. This is known as Marriage Allowance and you must earn a certain amount of money in order to be eligible.

Using Annual Individual Savings Accounts Allowance

The ISA allowance amount has been frozen at £20,000 since the 2018/2019 tax year, meaning you can shelter money from investments in ISAs. This means that your potential returns could be completely free of income tax and capital gains tax.

You’ll be able to split your ISA allowance between a Stocks and Shares ISA or a Cash ISA, but you can also just use a single one if you prefer. If you invest outside of an ISA, you will need to pay tax if your dividends go over the £2,000 dividend allowance.

Personal Savings Allowance

There’s also an additional £1,000 in personal savings allowance whereas higher rate taxpayers have a £500 allowance. However, you won’t be eligible for this if you are an additional rate taxpayer.

If you are looking to get help with your investments please do contact us here ar TKV Financial Management Ltd through our website, email contact@tkvfm.co.uk or call 01384 671947.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

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ISA vs Pension

ISA vs Pension – which is best?

ISAs (Individual Savings Accounts) are a popular way to save.  They are after all tax efficient and opportunities to be able to access your savings is appealing.  Whilst the additional tax-relief available with pensions has longer term benefits, this money can only be accessed once you reach age 55.

ISAs and pensions are two separate products but they can also be used alongside each other.  For example, you receive tax relief on contributions into your pension, not with an ISA and you cannot take benefits from your pension until aged 55, whereas ISA you can access any time.

Whether you are already paying into an ISA and/or a pension, it may be worth finding out about your options and seeing whether they can be more aligned. To help maximise your retirement savings.

Did you know the ISA allowance is now £20,000 per annum?  Add that to the annual allowance for pension contributions of up to £40,000.  That’s a combined allowance of £60,000 that can be used to reduce your tax burden and to build up a worthwhile retirement fund.

Although, you may think retirement is a long way off for it’s important that you make the most of your opportunities now and build up sufficient savings to support you through your retirement.

Contact us on 01384 671 947 for us to help you make the most of your ISAs and pension plans.  

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Investments and any income from them may fluctuate and can go down, there are no guarantees that you will make a profit. Pension income could also be affected by the interest rates at the time you take your benefits. Tax reliefs will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.