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Self-assessment – how to make it less taxing

How you can use fixed-term savings to earn better interest rates before your tax bill.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

If you need to complete a self-assessment tax return there are a couple of important deadlines coming up. If you plan to submit your tax return online for 2018/19, you’ll need to register for self-assessment by 5 October. Or, if you complete a paper tax return, you’ll need to submit it by 31 October.

If you’re thinking about your tax bill, it’s also worth thinking ahead to next year, specifically how best to manage your finances so you’ve got the right amount of cash set aside.

This article isn’t 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.

Let me explain. 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 year or more 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. You can currently get 1.8% AER/Gross* in a one year fixed-term product, which would mean you get your money back this time next year, in plenty of time to pay your tax bill. Think of it as a 1.8% reduction in your tax bill – that’s equivalent to £460 on £25,000 owed.

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 our Active Savings service could really help.

It lets you choose and manage a variety of savings from different banks, through the convenience of one online account. You can choose from easy access and fixed-term savings, ranging from typically three months up to five 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, and you can open an account with as little as £1. 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

*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.

Rates may be subject to change and depend on individual circumstances.

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).

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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