Money tips for the end of the tax year

Thank you for following our live blog today. We are signing off for the evening but will be back tomorrow, taking a closer look at inheritance tax rules and gifting allowances. Join us then!

Boosting your state pension – is it worth buying voluntary NI contributions?

For some people, buying voluntary NI credits can be a good use of money. It currently costs around £900 to top up your record by one year. In return, you could receive £330 extra per year in state pension income, based on 2024/25 amounts. In other words, the credit would have paid itself off in three years.

It doesn’t make sense for everyone, though. Groups who may not want to top up include those who are young, those who are in poor health, and those who are on Pension Credit. We take a closer look in: “Reasons not to top up your state pension”.

“It is crucial before paying voluntary NI that you check this is a sensible course of action,” says Tom Selby, director of public policy at investment platform AJ Bell. “If you are young, for example, you will likely build up the required 35-year NI record naturally through work. Equally, it is possible to claim free NI credits from the government if you care for children or elderly relatives.”

“The first port of call should be to review your NI record to see if there are any gaps to fill. From here, you can then consider if it’s likely to be beneficial or if there are alternative ways, such as claiming free NI credits, to boost your state pension entitlement,” he adds.

Can you boost the amount of state pension you receive?

The amount of state pension you receive depends on your National Insurance record. To qualify for the full new state pension, you need 35 years of National Insurance contributions. The full amount for the 2024/25 tax year is £221.20 per week.

If you have fewer years on your record than this, you will receive less money. For example, if you only have 20 qualifying years on your record, you will get 20/35ths of the full amount – so £126.40.

Those who don’t have enough qualifying years for the full amount are able to boost their NI record by buying extra credits. Under normal rules, you can only fill gaps in your record for the past six years but, under a special concession, the government is currently allowing people to fill gaps going back to 2006.

There are just days left to do this, as the deadline is the end of the tax year – but with long waitlists on the phonelines to the Department of Work and Pensions (DWP), the government has said people will still be able to claim as long as they log an online call back request by 5 April.

Tips to boost your pension before the end of the tax year

High retirement costs, combined with widespread undersaving, mean many are at risk of running out of money in old age – particularly now that people are living longer than ever before. It means savers need to prioritise their pension from a young age.

There are several steps you can take to boost your retirement pot before the end of each tax year:

1. Top up your pension to take advantage of tax relief on contributions worth up to £60,000. “You get tax relief at your marginal rate which means that, for a higher-rate taxpayer, that £60,000 contribution costs you just £36,000,” says Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown.
2. Boost a loved one's pension. If you have maxed out your own allowances, consider helping a family member. “You can contribute up to £2,880 into the SIPP of a non-working spouse/partner or into a junior SIPP for your child,” Morrissey explains. “They receive tax relief from the government, bringing the contribution up to £3,600.”
3. Make sure tax relief is claimed. Depending on the type of pension scheme you are in, the correct amount of tax relief might not be applied automatically. If you are in something called a “relief at source” scheme, the 20% basic-rate tax relief will be applied automatically, but you will need to claim the remaining 20 percentage points or 25 percentage points by filing a tax return, if you are a higher or additional-rate taxpayer. You won’t need to do this if you are in a “net pay” scheme. You can find out what type of scheme you are in by contacting your provider.
   

Cost of retirement – how much will you need?

The cost of a comfortable retirement has soared in recent years, driven by inflation. Singles now need £43,100 per year to retire comfortably, according to the Pensions and Lifetime Savings Association (PLSA), while couples need £59,000 per year.

This falls to £31,300 and £43,000 respectively for singles and couples looking to enjoy a moderate retirement, and to £14,400 and £22,400 respectively for those content with a basic retirement.

You can see what each standard of living includes by looking at the PLSA website, but it is worth pointing out that a basic retirement doesn’t even include the cost of running a car. None of the categories include housing costs – so expect to pay significantly more if you are still renting or paying off your mortgage in retirement.

Analysis from wealth management company Quilter, conducted last year when the PLSA figures were published, found that a single person would need a pension pot worth £738,000 to pay for a comfortable retirement. A couple would need £929,000 jointly.

For a moderate retirement, these figures fall to £459,000 (singles) and £514,000 (couples).

For a basic retirement, singles would need a pension pot worth £63,000, while couples could rely on their state pension alone, provided both qualified for the full amount.

Is there an annual pension allowance?

Unlike ISAs, you can put as much money into your pension as you like each year – but there are limits on how much tax relief you will receive. Pension tax relief is only available on up to 100% of your earnings or £60,000, whichever is lower.

Pension tax relief is effectively a rebate you get on pension contributions, where HMRC “refunds” the income tax you would otherwise have paid on the money when you earned it. For example, if you are a basic-rate taxpayer and contribute £80 to your pension, HMRC will gross it up to £100.

Not everyone is entitled to the full £60,000 allowance. If you have already accessed your pension pot to withdraw taxable money, you may have triggered something called the money purchase annual allowance. Once this has happened, your annual allowance drops to £10,000.

Similarly, high earners have a lower allowance. You lose £1 of the allowance for every £2 of adjusted income you earn over £260,000. “Adjusted income” is your total income plus the amount your employer pays into your pension.

The annual pension allowance renews each year at the start of the tax year. You can carry forward unused allowances from the past three years.

Good afternoon, and welcome back to our end-of-tax-year live blog. Yesterday, we wrote about ISA allowances but now we are going to turn our attention to pensions. Is there an annual pension allowance and should you top up your workplace pension, personal pension or SIPP before 5 April?

We're signing off for the evening but will be back tomorrow with further tips and analysis as we approach the end of the tax year, starting with a focus on pensions. Should you top up your pension as 5 April approaches?

In the meantime, take a look at our end-of-tax-year checklist.

What is “Bed and ISA” and should you do it?

“Bed & ISA” – it’s a strange name but a useful transaction. It involves selling investments held in a regular investment account and repurchasing them within an ISA wrapper. Some investment platforms will manage the process on your behalf if you fill in a form.

Carrying out a “Bed & ISA” transaction will use up some or all of your annual ISA allowance, but the upside is that any future income or capital gains will be protected from the taxman.

“It makes sense to try to ensure that all your gains in any one tax year fall within the annual capital gains tax allowance – which is only £3,000 this tax year – so there’s no tax to pay on your profits,” says Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown.

“If you’re married or in a civil partnership, you can also give assets to your spouse without triggering a tax bill, so you can both realise gains up to the allowance and then shelter up to £20,000 each in an ISA. This is sometimes known as Bed & Spouse & ISA.”

Just remember that the Bed & ISA deadline often comes a few days before the end of the tax year. This is because it takes some time to exit your original investments and repurchase them. The deadline varies from provider to provider.

See our round-up of Bed & ISA cut-off dates for major investment platforms.

Top funds for your stocks and shares ISA

If you are a last-minute ISA investor looking for some inspiration, it could be worth having a look at a best funds list. Several investment platforms compile these, using their own research to highlight a selection of products across regions, asset classes and styles.

These lists can be helpful, as they offer investors “a snapshot of the top funds, trusts and ETFs in each of the main sectors chosen by our research teams as well as a smattering of options with ESG strategies,” says Jason Hollands, managing director at investment platform Bestinvest.

“Deciding which actively-managed funds qualify as ‘best’ is a process that relies on the expertise of our investment specialists. They not only meet the fund managers on a regular basis to understand their philosophy and approach, but also carefully assess the type of market environment that might benefit from a certain manager’s style,” he adds.

“The risk management process, the size or liquidity constraints of the fund, the longevity of the manager and how scalable a fund is are other considerations.”

If you still aren’t sure which funds to select or don’t have much experience with DIY investing, you might be better off opting for a managed ISA or SIPP, where an investment professional selects funds on your behalf based on a predefined risk profile.

Alternatively, you could benefit from investment advice. This can be expensive but is often a good option for those with significant assets to invest. A robo-advisor could be a cheaper option than speaking to a person for those with a smaller pot, or more straightforward affairs.

Don’t feel under pressure to make a decision at five to midnight on the eve of the tax year-end. As long as you transfer your cash into the ISA account before midnight, it will count towards this year’s allowance. You can then select your investments at leisure.

How much more can you make in a stocks and shares ISA?

Analysis from investment platform AJ Bell shows that if you had invested £1,000 per year in the IA global sector since 1999 (the year the ISA was launched), you would have made around £49,000 more than the average cash ISA return.

Investing in the North America sector would have delivered you around £86,000 more.

Meanwhile, a cash ISA wouldn’t have even kept up with inflation.

“That’s not to say that everyone should ditch cash and bonds, as safe havens have a key role to play in people’s portfolios,” says Laura Suter, director of personal finance at the platform. “Some people prefer the security of knowing their money is safe from market fluctuations, while others need short-term money or easy-access savings.”

“But it shines a light on the missed wealth opportunities for those who are defaulting to cash and not taking that first step into investing. Being in cash should be a conscious decision, rather than unthinkingly hoarding it,” she adds.

^{Source: AJ Bell/Bank of England/FE. Data from 30th April 1999 to end of December 2024. Based on a £1,000 investment every year from April 1999.}

ISAs: cash vs stocks and shares

Around 14.4 million Brits have a cash ISA, according to the latest HMRC figures, while 4.2 million have a stocks and shares ISA. Despite this, stocks and shares ISAs are worth a lot more – around £430.1 billion, versus £294.3 billion.

This can partly be explained by the fact that the average investor puts around £7,200 per year in their stocks and shares ISA. Meanwhile, the average saver puts around £4,300 in their cash ISA.¹

It can also be explained by the stock market’s long-term outperformance.

Investment returns almost always beat cash over the long run, provided you are willing to ride out some short-term volatility. See our analysis on saving versus investing. A minimum investment horizon of three-to-five years is usually recommended.

¹Based on average subscription amounts between 2008 and 2023, sourced from the latest HMRC report.

We need to talk about ISAs

An Individual Savings Account (ISA) is one of the most straightforward tools you can use to reduce your tax bill. There are lots of different types of ISAs on the market, but the general gist is that adults can stash £20,000 in an ISA each tax year and it will be shielded from income and capital gains tax.

Check out our ISA guide for the basics on how an ISA works, and the different types available, including:

• Cash ISA: This is the best way to protect your savings income from the taxman.
• Stocks and shares ISA: A vehicle which shields your dividends and capital gains from tax.
• Lifetime ISA: A tool which helps you save for your first home (or retirement), offering a valuable government bonus of up to £1,000 per year. The allowance on this ISA is lower, at £4,000 per year. This allowance is included within the £20,000 limit.
• Junior ISA: A savings and investment vehicle for under-18s. The limit on this account is £9,000. Adults can contribute to this on behalf of a child without using up a portion of their own £20,000 allowance.
• Innovative finance ISA: A tool which allows you to engage in peer-to-peer lending and enjoy tax-free returns. This type of ISA can come with bigger risks.

Welcome… four days to go!

Good afternoon, and welcome to our blog. There are just four days to go until the end of the tax year, when some of your 2024/25 tax-free allowances will disappear forever.

With the tax burden at historic levels, it is more important than ever to take advantage of tax-efficient tools like your ISA and pension. We’ll be live blogging some tips to make the most of your finances. Stick with us.