Keep more of your hard-earned cash and pay less to the taxman. The aim is to have:
- a current account for money coming in and expenses going out
- an easy-access, high-interest savings account for your emergency pot (for when things
break down or need replacing or you need to cover a couple of months of regular expenses,
Be aware that tax on interest from savings is going up from April 2027. Make sure you keep any interest made on savings below the threshold for your income level. The wonderful Martin Lewis explains more https://www.moneysavingexpert.com/savings/how-savings-tax-works/
- a Stocks & Shares ISA - max this out if you can. You can access this at any time but ideally, you’ll leave well alone so you can enjoy the tax free growth,
- Self-Invested Personal Pension (SIPP) for long-term tax free growth if you’re self-employed, or have a workplace pension but want to reduce your tax burden.
What I didn’t realise when I started investing is that you should invest in funds through a tax efficient
account like a Stocks & Shares ISA or a Self-Invested Personal Pension.
Stocks and Shares ISA – Why? You don’t pay any tax on the money you make and there’s no tax to
pay when you withdraw. In a standard investment account (otherwise known as a General
Investment Account or GIA), you pay tax on any growth (Capital Gains) and tax on any money you
withdraw.
SIPP (Self Invested Personal Pension) – Why? For every 80p invested in your SIPP, HMRC will top it
up to £1. This is free money! Your money grows tax free. Investing in a SIPP can also bring your tax
threshold down and affect the amount of income tax you pay each year. So, if you’re a higher rate
taxpayer, you can invest money into a SIPP to bring you down to a basic tax rate payer.
I’m ready to go! How and where do I start?
The best and easiest way to start investing is to open a Stocks & Shares ISA and a SIPP (if you haven’t
got a workplace pension or you want to reduce your tax threshold) through a low-cost platform like
Vanguard, Hargreaves Lansdown, Fidelity, Interactive Investor etc. More to come on platforms, fees
and funds.
Something to mull over…..
Investing is really for long term goals. Remind yourself why you want to start investing, what’s
driving you to do it? Are you investing with a view to clearing your mortgage in X years’ time? Do
you want to build a pot for a secure financial future and a comfortable retirement? Or maybe your
aim is financial independence, so you don’t need paid employment or can drop down to part-time to
pursue a side hustle/passion project/something else.
Ideally, be prepared to leave this money well alone for at least 5 years, I’d say 8+ years, so you can
reap the rewards of compound growth. Your money needs time for the interest to earn interest and
grow.
Are you in debt? Make it a priority to clear any debt before investing anything. I’ve come across a
great approach to clearing debt, more to come on this in a future blog. Depending on the level of
debt and the amount of interest you’re paying, you could start building that emergency pot up at the
same time, but I would avoid investing until the debt is cleared.