What happens to your savings as inflation increases?

In this podcast episode I take a look at the erosion that occurs in your savings with higher inflation rates and how you can benefit from tax relief in the coming year.

If you would prefer to read about it, there’s also a transcript below.


Is inflation eating your savings? and if so, how do you benefit from tax relief in the current financial year?

This is the topic on this week’s episode, because as your income increases, the complexity of your finances will also increase.

Tax efficiency is a key consideration when investing, because it can make such an enormous difference to your wealth and quality of life. However, the type of investment and tax efficiency you should be looking at will depend firstly on whether you a priority is to save a lump sum for the future, or to draw an income today.

There are a number of allowances and reliefs available to UK taxpayers on their savings and investments and it’s important to make use of these as they can help to reduce your overall tax bill.

So let’s consider some of the tax reliefs you can use.

If you’re looking to save money on your taxes and if you are a UK resident, then one way to do this is by contributing to an individual savings account or ISA. With an individual savings account, you can shelter up to £20,000 of your income from taxation in the current tax year.

Stocks & Shares ISA

So, if you are looking to maximize your ISA Allowance in this current tax year, then you should consider opening a stocks and shares ISA.

With a stocks and shares ISA you can invest in a wide range of assets, including shares, corporate and government bonds, unit trusts, investment trusts, exchange traded funds, individual stocks and shares and open-ended investment companies.

Not only will your investment grow tax efficiently, you’ll also benefit from the potential for capital gains.

ISAs and taxation

Cash ISA

Another option is to open a cash ISA. With a Cash ISA you can earn interest on your savings, without having to pay any tax on the interest earned.

This makes it an ideal way to boost your savings while minimizing your tax liability.

A Cash ISA is available to anyone aged 16 or over.

While an ISA invested in any combination of cash and shares is available to those over the age of 18.

Lifetime ISA (LISA)

Another option is a lifetime ISA or LISA.

So if you’re looking to save for retirement, or to buy your first home you may also want to consider opening a lifetime ISA, which is available for people aged between 18 and 40.

With a lifetime ISA you can save up to £4,000 in the current tax year, but it does count towards your annual ISA allowance of £20,000.

The government will add a 25% bonus to any savings held in a LISA, up to a maximum or £1000 per year. This does not count towards your ISA allowance.

You will need to bear in mind that the money you put into a LISA each year forms part of your overall £20,000 ISA Allowance. So if you put £4,000 into a LISA during the tax year, you’ll be able to put another £16,000 into either ISAs in that same tax year.

Junior ISA

And finally junior ISA’s.

So, if you have children, you may want to consider opening a junior ISA for them. The junior ISA is available to UK residents age under the age of 18, who do not have a child trust fund account.

Under 18s or their parents can put up to £9,000 in a junior ISA each tax year. The money saved in a junior ISA will grow tax efficiently and can be used for a wide range of purposes, including education and training costs.

Something you will need to note is that if unused your ISA allowance cannot be carried from one tax year to the next.


Another great way to save tax is to consider putting more money into a pension, and under the current rules for the tax year, 2022/23 the maximum gross contributions are eligible for tax relief each tax year are the lower of your gross earned income and £40,000. That includes employer and employee combined contributions, and if this annual allowance is exceeded a tax charge, applies on the excess unless it can be covered by using carry forward from previous tax years.

Note very high earners may have a lower annual allowance, and if in doubt, seek financial advice.

Increasing your pension contributions is a very efficient way of saving for retirement. By putting more money into your pension, you will be able to build up a larger pot of money, which could provide you with a more comfortable retirement income.

It is also worth considering increasing your pension contributions if you have recently had a pay rise, or come into some extra money. By doing this, you will ensure that you are making them most of your finances and making them worse of your retirement prospects.

You can also carry forward unused allowances from the previous three tax years, subject to certain rules, providing further scope for making larger contributions. If you earn over £100,000 making pension contributions can be highly advantageous. Your personal allowance is reduced by £1 for every £2 of income above £100,000

This means your allowance is zero if your income is £125,140 or above.

However, if you make a pension contribution, this comes off your income figure for this purpose.

So if the gross contribution is enough to reduce your total income below £125,140 you are able to offset or remove the reduction in your personal allowance.

In conclusion

As you can see, making use of these allowances and reliefs could save you a significant amount of money in taxes every year.

And if you need help with this, then please get in touch, or speak to your own financial advisor.

I hope you found this week helpful and as always, please leave comments or what topics that you want covered next time.

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