A boost towards next year’s tax return

If you needed to submit a tax return for the 2018/19 tax year, the deadline for paying your tax passed on 31 January. So you’re probably looking forward to not having to think about it for a while.

But a small amount of effort now could reap rewards when your next tax return comes around.

This article isn’t personal advice. If you’re not sure what to do please seek financial advice. And if you need specialist tax advice please contact a tax expert. Tax rules can change and benefits depend on your circumstances.

Planning for the future

Ideally, you should have a savings pot built up throughout the year to cover any tax you’re likely to owe. And if you’re building up some savings it makes sense to get them earning the best return you can.

If you want to sell some shares or a property with a large capital gain, you might end up owing some capital gains tax. You have an annual allowance, which is £12,000 for the 2019/20 tax year, but anything above this and you’ll be liable for capital gains tax at up to 28%, depending on your income tax position.

Once you’ve sold you’ll need to set aside some of your gain to pay your tax bill. You don’t need to give it to HMRC yet, and you could have a while until it’s due. So what should you do with it in the meantime?

One idea could be to look at fixed-term savings, where you can usually get a better rate than leaving all your cash in an instant access savings account. After all, the average instant access savings rate is a measly 0.41%, including unconditional bonuses. That’s not going to contribute much towards your next tax bill.

You can currently get 1.40% AER/Gross* in a 6 month fixed-term product, which would mean you get your money back in plenty of time to pay your next tax bill. Think of it as a £175 reduction on a tax bill of £25,000.

Instant Access vs fixed term

Source: Bank of England and Active Savings. 5 February 2020.

Unlike easy access, with fixed-term savings you usually won’t have access to your money until the product matures. Inflation will erode the value of money over time.

Your savings working harder, without the hard work

You might also have other income or capital gains that accrue through the year that you need to declare on your tax return. Again, you can use fixed terms to get a decent return, while making sure you get the money back when you need it. You might also want to keep some of this cash accessible in instant access.

While this all sounds great in theory, in reality managing various savings that mature at different times could sound like a headache, and just too much hassle to bother with. That’s where Active Savings could really help.

It lets you choose and manage a range of savings products from different banks, through the convenience of one online account. You can pick from easy access and fixed-term savings, ranging from typically three months up to three years, so you should be able to find something that’s right for you.

Simplify your next tax bill

If you’re earning a good amount of interest, you might have to pay some tax on it. Most people have a personal savings allowance, currently it’s £1,000 for basic-rate tax payers, £500 for higher-rate tax payers, and £0 for additional-rate tax payers.

Active Savings can help make managing this simpler, we’ll send you a consolidated tax schedule at the end of each tax year showing the total interest you’ve received. You simply need to attach this to your tax return and you won’t need to do any complex calculations to work out how much tax is due.

Why not get started today?

Getting started with Active Savings only takes a few minutes. Not only could you earn more interest, you’ll also have taken an important step towards saving for next year’s tax bill.

Discover Active Savings

View latest rates

*AER (Annual Equivalent Rate) Shows what the interest rate/expected profit rate would be if it was paid and compounded once each year. It helps you compare the rates on different savings products.

Gross – The interest rate without any tax removed. Interest/profits are paid gross. You are responsible for paying any tax due on interest/profits that exceed your Personal Savings Allowance to HM Revenue & Customs.

Expected profit rate - Islamic banks offer an expected profit rate, rather than interest on their savings products, in order to comply with Sharia banking principles. They are authorised by the Prudential Regulation Authority, and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Any eligible deposits up to £85,000 are covered under the FSCS. More about Sharia banking.

Products can be withdrawn at any time without notice.

This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Payment Services Regulations 2017 with firm reference 751996 for the provision of payment services. Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).