3. Get What’s Coming To You
Know your allowances. Firstly, there are many allowances given by every government which many people do not claim or make full use of.
Apologies to international readers, as this section is very much UK-centric, but your take away message should be to research your know government website to find your own local context. There is some variety for different areas of the UK, but here is a short list which you should investigate:
- Tax Credit
- Carer’s Allowance
- Personal Allowance
- Marriage Allowance
- Personal Savings Allowance
- Capital Gains Tax allowance
Your personal allowance is the amount you can earn before you begin paying any income tax, and is £12,500 (as of December 2019). If you are a full-time teacher you will earn over this and pay tax on earning over this amount. If you earn over £125,000 the personal allowance disappears altogether.
Marriage allowance is not being claimed by a vast number of people who could (source). Introduced in 2015, it allows married/civil partnership couples to transfer £1,250 of personal allowance to a partner. So if one partner earns less than £11,250 per year, you can save a higher-earning partner £250 of basic rate tax a year. This can be backdated to 2015, so there may be over a thousand pounds to claim.
There are a number of tax allowances which mean that you can earn from investments and savings up to a certain point before you need to pay tax on the profits.
The Personal Savings Allowance allows you to earn interest up to £1,000 of interest tax-free if you are a basic-rate (20%) taxpayer, or £500 if you’re a higher rate (40%) taxpayer. There is also a Starting Rate for people earning less than £17,500 per year. We will come back to how you can maximise your interest allowance in the next in the section.
If you sell something you may have to 20% (or 28% on a 2nd property) to the government for doing so. You pay Capital gains tax when you ‘dispose of an asset’, what normal people call selling something. You should pay Capital gains tax when selling items £6,000 or more, although there are exceptions like cars and the average-sized first home. This includes stocks and shares, which we will come to in a later section. There is a £12,000 capital gains tax allowance, meaning that you can gain from selling your assets up to this amount without troubling the taxman or woman.
Making allowances closer to home…
There is another area where teachers are poor at getting what’s coming to them – school reimbursements. I, like many teachers used to pay for things for my class and not claim petrol money when I attended courses as I believed that this took money away from the children (plus the bursar was a bit scary). However, two things have changed my mind.
Firstly, if teachers continue to subsidise schools it allows governments of all varieties to rely on this an underfund our schools. If teachers stop funding their classrooms with their own funds, perhaps the government will step in. One has to be optimistic!
The second thing was that I discovered that the headteacher (still in post in a north Essex Island community school) claimed thousands to meet with other local heads in far-flung corners of the UK for ‘weekend meetings’. I figured that not claiming my £10 in petrol money would make the difference to the children when that sort of thing was going on.
Before moving on to saving accounts at banks, the government’s Help To Save scheme is a must if you are debt free and have money to save. Partners can have an account each, and you can save up to £50 per month and receive up to 50p for every £1 saved in bonuses at the end of the 2nd and 4th years. Therefore, if you save the maximum £2,400 over the four years you will get £1,200 in return. Bonuses are based on your highest balance, so while you can withdraw your deposits whenever you wish, this will reduce your overall bonuses. Correct as of December 2019, you are eligible if you are:
- receiving Working Tax Credit
- entitled to Working Tax Credit (your statement will probably say ‘nil’ after a reduction calculation, probably due to earnings of you or your partner) and receiving Child Tax Credit
- claiming Universal Credit and your household earned £569.22 or more from paid work in your last monthly assessment period
See the Help to Save government website for details and how to apply.
If you are the average bank customer, you have been with the same bank for more than a decade, and perhaps the same one that you and your parents set up in your teens. With the base rate of interest at 0.75% (as of November 2019), many bank accounts and products give meagre returns. Therefore, if you wish to hoard cash in your bank account, you should aim to make your cash work as hard for you as possible. Cash ISAs are paying less interest than many current accounts and regular saver account now, so if you still have a one you may wish to shop around and look for better places for your money. There is no limit to the number of bank accounts you can hold (except ISAs – Only one new cash ISA and one new Stock and Shares ISA per financial year), only your sanity to manage them. So be a fiscal flirt and move accounts or hold multiple accounts at the same time to use all the benefits and limits they offer. I use one bank to do my actual day-to-day banking, with many other bank accounts with different providers providing where I max-out the high-interest limit.
Always have in your mind that inflation, currently around 1.8% (as of January 2020) is eating away at the value of your money, so that should be the minimum interest to aim for. Another thing to be mindful of is that many bank accounts require monthly direct debits, usually two, to be paid from the account to get the best rates. If like me you don’t have that many direct debits to use, you need to apply them carefully. Note that Council Tax is usually paid in ten instalments, so is not useful for this, and that using direct debits from the same company, such as two mobile phone contracts, is not allowed at the same bank.
Here are a few of my current favourite accounts which you may wish to investigate:
Nationwide FlexDirect Account
Get £100 welcome bonus by using this link: https://portal.nationet.com/forms/bespoke/raf/recommended?code=1559-6829-48BU-R8LR-1
5% on up to £2,500 – interest paid monthly
No Direct Debits necessary
Conditions & restrictions
Pay in (and then quickly pay out if you wish) £1,000 per month to keep the interest rate.
Only available for 12 months
FirstDirect Regular Saver Account
2.75% for 12 months of between £25 – £300 monthly payments – interest paid at the end of the year.
No Direct Debits necessary
Conditions & restrictions
Requires a 1st Account – This requires a minimum balance of £1,000 or paying in (and then quickly pay out if you wish) £1,000 per month to avoid the £10 account fee.
Club Lloyds and the Club Lloyds Monthly Saver
While the interest rates below are relatively low, the club Lloyds account comes with ‘Everyday Offers’ which gives cashback at retailers and restaurants, plus as a foodie who eats out a few times a week, the Gourmet Society membership saves an additional 25% off of many restaurant bills.
Club Lloyds: 1% on up to £4,000, 2% on between £4,000 – £5,000
Monthly Saver: 2.5% for 12 months of between £25 – £400 monthly payments – interest paid at the end of the year.
Conditions & restrictions
Monthly Saver requires a Club Lloyds account: pay in (and then quickly pay out if you wish) £1,500 per month to avoid the £3 account fee.
Two Direct Debits required to get interest on the account.
Help to Save
There are a number of innovative platforms which are challenging the traditional high street banks, and help people who find it difficult to develop saving habits. My current favourite is called Chip and is an app for iOS and Android.
It is linked to your bank account and uses an algorithm to work out how much you can save and redirects small amounts of money, with your permission, to a Barclays saving account. Once the bank account is linked, the app will ask for a code. Enter the code 5XOPQQ (<that a zero) to get the bonus – at time of writing this is £10. You can also manually add funds to Chip and get your money almost instantly when you want it. This is great for creating a separate ‘pot’ for painlessly saving up for something like a holiday.
Placing your money to maximise returns can take a while when starting out and having a safe and easily accessible place to hold money which is otherwise not earning interest is essential so you have time to research and to take your time over decisions. Premium Bonds are one of the safest investment you can make, as they are backed by the government. While the prizes equate to an approximate ‘interest rate’ of around 1.40%, they are tax-free, and you can get your money back in around 3 days when needed. Plus, your numbers may come up and you could win a million pounds or at least a few £25 payouts over a year.
The article continues on the next page…