Today we're exploring a topic that's not only timely, given the impending financial year-end, but also incredibly valuable—accessing free money for investing and securing your financial future. Yes, you heard it right, free money!  Learn how to utilize the U.K.'s tax system to your advantage and make your investing as efficient as possible.

I've got our investment coach, Peter Deane with me who has experience with these tax incentives and also advises our clients on how to leverage them in an efficient way.

As investors, our aim is to maximize our financial security through compounded growth. One effective way to achieve this is by tapping into the free money available via tax incentives.

This is a final opportunity to check for any gaps in your National Insurance record, and if so top up your contributions to prevent a shortfall of State Pension. Normally, you can buy back up to six years, but when the new State Pension was introduced, arrangements were put in place to go back as far as 2006. The deadline for checking back to 2006 is 5th April 2025.

You should check your position as soon as possible if you think this may apply to you. You can start by checking your National Insurance record which will show you whether you have full year’s contributions from 2006 and identify any years that are not full. To do this, follow this link [Check your National Insurance record - GOV.UK](https://www.gov.uk/check-national-insurance-record) .

Next, visit the State Pension forecast calculator [Check your State Pension forecast - GOV.UK](https://www.gov.uk/check-state-pension) which will tell you how much State Pension you stand to receive based on your current National Insurance record, and a forecast of how much State Pension you are likely to get if you work up to State Pension age. The full amount of State Pension is £221.20 per week and if this is not the amount showing, you may be able to boost your contributions to get to the full amount.

If you identify a shortfall, you can make additional contributions to cover the gap. However, you should talk this through as whilst topping up is beneficial in most cases, there will be individuals for whom this is not appropriate. Phone lines are set up for people who are not yet at state pension age [Contact the Future Pension Centre - GOV.UK](https://www.gov.uk/future-pension-centre)

Remember, a full State Pension can be a valuable part of planning for retirement and is worth approximately £300,000 in today’s terms.

Thank you for joining us today, and a special thanks to Peter Deane for his insights. Until next time, stay informed and make the most of what’s available to you.

Link to slides mentioned in the episode are here and here.

Thousands have learnt via our Investment Academy - learn more here:

https://investlikeapro.co.uk/academy

More on InvestLikeAPro:

https://investlikeapro.co.uk/

Follow me on Facebook for regular investment insights:

https://www.facebook.com/manish.kataria.7758

Connect with me on Linkedin:

https://www.linkedin.com/in/manishkcfa/

IMPORTANT: Your Capital is at Risk. Investments may not be covered by the FSCS. This is NOT investment advice - for information purposes only. Please seek advice from a regulated advisor before investing. The value of investments can fall as well as rise - don't rely on past performance.

Welcome to the invest like a pro podcast, teaching you diversified

investing with a simple set and forget approach to stocks and options, build

inflation beating wealth for your future and recurring income for today.

And now your host, former JP Morgan, investment manager, Manish Kataria.

Hello, and welcome back to this very special episode.

Hopefully it's timely for you, because we are, at the time of recording, we

are approaching the financial year end.

And this episode is all about obtaining free money.

Yes, that's right, free money.

It's not often that you can say that, right?

And we're all about trying to You know, make our sort of investing

as efficient as possible.

And what's better than free money to be able to do that and to build

your financial security using compounded growth and the benefit

of free money from the tax system.

So we're going to explain how you can turn the tax system on its head today

and obtain that free money to enable you to invest in a far more efficient way.

And I've got, Our investment coach, Peter Dean, with us, who has, has

experienced personally of taking advantage of these, tax incentives

and also advises our clients on how to do this in an efficient way.

So welcome back, Peter.

How are you doing?

Thank you very much.

I'm good.

How are you?

Very well, thank you.

Very well.

I'm excited about, putting, my own contributions in.

I've done most of it for this year, but I've got a little bit left,

which, this episode is fairly timely.

It's an absolute use it or lose it.

and if there's one thing better than free money, it's free

money from the government.

So who's going to say no to that?

Absolutely.

Absolutely.

Well put.

so yeah, so today we're going to talk about how it works,

what the allowances are.

if you're listening to this.

before April the 5th.

hopefully you've got time to act upon what we say today.

Even if you're listening to this after April the 5th, it's not a

big issue because we have another tax year that starts April the 5th.

the only thing is, you might lose some ability.

For the previous tax year.

Okay.

Particularly with ISAs, because ISAs are, use it or lose it with pensions, there is

the ability to carry forward from previous years that you might not have used.

Is that right, Peter?

Yeah.

You've got, yeah, that's right.

Yeah.

Yeah.

ISA is a single, you have the, you have your ISA allowance every

year, whereas pensions you can use three years worth of relief.

And then you might go three years worth of unused relief.

So yeah, we've come on to that.

Yeah, absolutely.

Yeah.

All of these are, essentially, free money.

It's free money from, pension contributions, ISAs,

ISAs are tax free forever.

And then we're also going to touch upon capital gains tax allowances.

And also Peter, very importantly, Peter is going to talk to, talk

through, the state pension.

that we can, we're all entitled to.

and there is a very important deadline coming up on that.

So which you should all take action on.

Pete will explain a little bit about that, in a minute.

So let me just start off talking a little bit about, the concept of free money.

because it sounds great, right?

who wouldn't want free money from the taxman, who wouldn't want it?

but and some people might think it's far fetched.

It really isn't.

it's it's as simple.

as it as can be, you make pension contributions and you, essentially

obtain free money through different ways.

depending on whether you're working or whether you have a limited company

or you can claim it back on your, on your year end, self assessment.

So let me just talk through a few projections, just how spectacularly,

enormous this benefit can be for you.

Okay, so if I just share my slides, and if you're listening to this on

a podcast, we'll provide some of these in the show notes for you.

If you're listening, if you're watching this on video, then

you'll be able to see these.

this is available, as always on YouTube and on your favorite podcast platform too.

The theme here really is free money from the taxman.

That literally is.

What we are achieving here, right?

So this is how it looks.

imagine you put in 20, 000 into your pension.

you could put in up to 60, 000.

The annual allowance is 60, 000 and we'll talk you through the annual

allowances for everything in a minute.

But here's the concept.

If you put in 20, 000 into your pension in any particular year, the cost to

you as a 40 percent taxpayer is only 12, That's 12, 000 that you put in

from your pocket and you get 20, 000 dropped in to your pension, okay?

And that's 8, 000 of free money every year from the taxman, if

you're a 40 percent taxpayer.

If you're a 45 percent taxpayer, you get more.

If you are a 20 percent taxpayer or, if you're doing this

through your limited company.

There's less.

Okay.

But, we're just using the example of a 40 percent taxpayer.

Now that's 8, 000 pounds free money being dropped into your pension.

That doesn't come out of your pocket and you can do that every year.

So what we're doing is turning the tax system on its head.

Peter?

Yeah.

No, absolutely.

And just think of that as a percentage.

So instantly, your contribution has grown 66 percent straight away.

Absolutely.

And that can, compound year in, year out, as long as you

keep making the contributions.

Exactly, as we'll see in a minute.

So yeah.

it's a great point what Peter has just made, because yes, the tax man

contributes 40 percent of the bigger amount, but exactly as Peter said, if

you're putting in 12, 000 pounds, and if you're automatic, think of it like

this way, you're putting in 12, 000.

And you're getting an instant return on your investment of 66%.

What other investment can give you an instant return that much, right?

So even if you think about it, you put that much money into your pension and

put it into stocks, even if stocks were to decline the very next day by 66%,

which they've never done, by the way.

But if they did, you'd still be no worse off.

Yes.

it's pretty amazing.

But here's Where it gets better, right?

we've just plotted a chart.

if we do this every year, this kind of tells us how much we've invested.

Both ourselves and the government.

Okay?

So the blue line is how much we've invested.

That's the 12, 000 starting off, and then the government is

putting in 8, 000 every year.

Now that's assuming it's not been invested.

Now just look at the numbers.

when it is invested, right?

The green bars show you the compounded growth of your investment, the

government's free money, and the spectacular, the average market gains.

You get from stocks.

Okay, and it's, within 16 to 17 years, your 20, 000 pounds per annum or your 12,

000 pounds per annum becomes a million pounds just using tried and trusted

methods and using the average return that the stocks that stocks have given us.

it's pretty amazing, isn't it, Peter?

Yeah, that's, that's phenomenal in terms of the compounding effect of that growth,

aided by the government contribution.

But I just want to add, if you're in a workplace pension, there's a third

party here who's contributing as well.

So if you're in a workplace pension where an employer is contributing,

and to a certain level most employers match, in fact they have to, with, with

auto enrolment, match the employee's contribution, for every one pound

you put in, The, your employer is matching it with 1, and depending on

if you're a higher rate taxpayer in that instance, there's another 40p

going in, so 1 overnight becomes 2.

40. and look at the compounding effect of that as well.

And we haven't even accounted for that in these charts here, right?

no, not at all.

No, this is just standard level of contributions regardless of where

they're coming from, but yeah.

Yeah, so it's even more free money, right?

So if you are an employee And if you're not maxing out the, the employer

match, you really should do that.

It really is a no brainer, right?

Because that's more free money from your employer, free money from the tax man.

and the compounded growth will just be phenomenal, right?

you'll reach a million in much less than these projections

show using employer money.

so yeah, so that's, make the most of that wherever.

and whenever you can, it really is a super attractive benefit.

and, you'll be thankful when it comes to retirement because that amount of

money is literally life and the other thing we should, we'll talk about state

pensions later, but, we, your state pension can come on top of this, but

that really this will be the primary driver of your financial future.

We've touched upon pension allowances.

So what are your pension allowances per annum?

Okay, so you get up to 60, 000 per annum, right?

That you can contribute into your employer pension, your SIP or your SAS, right?

60, 000 per annum.

you can carry forward up to three years worth.

So in previous years, if you have, under invested, under contributed, speak to your

accountant, see if there, there is scope for you to carry forward from previous

unused, years and, unused allowances.

Okay.

so you might find That instead of doing 60, 000 this year, you could do in excess

of 100, 000, depending on how much you've contributed or not in previous years.

what this also does is it could reduce your taxable income, right?

So if you, if you, do what's, what's called a salary sacrifice.

if you're an employee, you could, it could lower your tax

rates, your marginal tax rates.

You could find yourself being, eligible for child benefits as well.

So all of these things are super valuable benefits.

your personal contributions, as we've talked about earlier, you get income

tax relief at your marginal rate, whether that's 20, 40, 45, whatever

that is, you get income tax relief.

Okay.

10k, e. g. 10k contribution costs you 6, 000 with HMRC adding 4, 000, right?

The example before, a 20, 000 contribution costs you, 12,

000 with HMRC adding 8, 000.

so as a rule of thumb, for every 1, 000 you put into your pension, HMRC

will add your marginal tax rate worth.

And if you max it out, every year, if you're in a position to be able to max

it out, if you put in 60, 000 pounds into your pension, and if you're a 40 percent

taxpayer, it's only going to cost you 36, 000 with HMRC adding 24, 000 right?

If you are a limited company owner, You can do this.

you can make contributions from your limited company into your personal

pension, into your director's and then you get corporation tax relief.

So whatever you put in, you will, you will, you'll save corporation tax on the

amount you put in, into your pension.

so these are again, so these are the allowances, Peter?

I don't know if you have anything to add to that.

No, so the only other thing I would add to it, and it's probably a little

bit too, too detailed for, to go into much detail here, is the fact that,

certainly with salary sacrifice, there's the opportunity to save cash

insurance contributions as well.

for where an employer is helping, offers a salary sacrifice for

employees and for their pension.

the employer saves on the NIC contributions that those, that

those, that amount going into the pension would have required.

Yeah.

Yeah.

Yeah.

So there's lots of opportunities here to, for the employer as well

as employees to reduce their tax bill, increase their pension.

Yeah.

Such a valuable benefit on so many different Yeah.

so those are the pension allowances, but.

It's not just about pensions, right?

And there are other tax benefits we can take advantage of.

Another big one is your ISA, your annual ISA allowance.

Now, a lot of people think that your ISA is just a cash Actually, most

people in the UK have, if they're going to put money into an ISA, it

typically tends to be a cash ISA.

but you can also invest that money.

You can have a stocks and shares ISA.

There are lots of different types of ISAs.

Now, talking of stocks and shares ISAs, we've got a lot of catching up to do in

the UK because in the US, the equivalent of the ISA, something like 16 to 17

percent of, individuals in the U S contribute to their stocks and shares.

I say equivalent in the UK, we're only at 6%.

and that's a bit of a shame because stocks and shares, you know, give you

much higher returns, have given you much higher returns than ordinary cash.

ISAs, right?

so that's a bit of a shame, but we are catching up slowly, right?

So here's, here's just something that shows us that historically

the black line here are cash ISAs.

This is how much we in the UK are adding.

every year into our ISAs and historically cash ISAs have

been the biggest contributor.

we've been contributing the most into cash ISAs, whereas the blue

line is the stocks and shares ISAs.

So only recently, as you can see, the stocks and shares

ISAs have overtaken cash ISAs.

So we're, we are playing some catch up, but we've got a fair bit to go.

Okay.

Now, ISAs are super.

super, beneficial for you as well.

the allowances every year.

you have different types of ISAs.

Cash ISA, Stocks and Shares ISA, IF ISA.

and there's a, there's something called the LISA as well for under 40s.

Now you have up to 20, 000 per annum as adults.

And you can contribute for your children under 18.

And they have an allowance of 9, 000 per annum.

ISAs are tax free forever.

Even at the point of withdrawing at the back end, when it comes to

withdrawing, they are tax free forever.

Unlike pensions, you can withdraw your ISAs any time.

Whereas with pensions, you, there's a minimum age at which you can, withdraw.

Use it or lose it, come April the 5th, that's your last day.

If you're sitting there on April the 6th, you've just lost

your previous year's allowance.

So really try to make the most of this as you can.

and, and, if you've got surplus cash lying around, that's already been taxed

or already been, it's just sitting there.

It makes complete sense just to put it into an ISA.

At least, you'll save some tax on your interest.

If you haven't filled your ISA allowance, it just makes complete sense to do that.

Peter, I don't know if you've got anything else to add, the difference between

ISA and pensions or anything else?

yeah, only, I do get asked quite frequently, should I invest in an

ISA or should I invest in a pension?

the reality is that maximum advantage of your tax reliefs.

and ultimately that will come down to a decision, that you need to make around

how far away are you from retirement.

have you put the maximum into your pension or not?

is there some How quickly do you want access to the cash?

Because as we've seen with ISAs, you can get it pretty immediately.

Whereas pensions, it's locked up until your pension age, your pension age

that you can, you can't access those.

which in some cases is a good thing because it helps us to

invest for the longer term because we can't get access to it.

So we're not tempted to, we can't be tempted to, to access it quickly.

so it depends of course on a number of factors, but whichever you do something.

So make as much use of the cash you've got, whether it's sacrificing it

from your salary and going into your pension, or you've already been taxed

on it and putting it into an ISA.

and finally, the other point about ISAs is that, it's great to see now that

people are taking a longer term view with stocks and shares ISAs as opposed to cash

But the reality is you can have both.

So you don't, that 20, 000 per annum doesn't have to be in a

single ISA, it can be spread across.

number of different types of ISAs.

So you can have a little portion allocated to cash everyday needs and an appropriate

portion allocated for longer term growth and compounding in stocks and shares.

Yeah.

It's a very common question, should I put money into an ISA or a pension?

My starting point is always, as you've just said, Peter, is to

try and do both where you can.

They both have their own kind of, different tax advantages, which are

both really valuable, as you can see.

So try and do both wherever possible because, these tax advantages, we have

three leakages from our wealth, right?

Fees, inflation.

And taxes.

Now, taxes are huge.

As you can see in the first projection we made, the compounded benefits of receiving

that tax, that tax back, so to speak.

And the reverse is the case.

If you're paying tax on your savings, if you're paying tax on your

investments, that can very quickly negatively compound on your wealth.

so avoid negative compounding.

And try and, obtain the free cash, which will give you.

Huge, massive, free, positive compounding.

Yeah, absolutely.

So it maximizes your free cash from the government and your employer

if you're in a workplace Exactly.

So the other thing we just wanted to touch upon, is, this is a

relatively minor one these days because the allowances have been cut.

So capital gains tax.

Now we do also have these allowances which also run until April the 5th, every year.

The allowance we, we have for capital gains taxes are three thousand pounds,

per annum and, so the rates are reflect your basic and higher rates, okay?

18, 24 percent, and, so whether you are, whether you've made gains on stocks or

property, Or any other assets, right?

And we have up to 3000 pounds per annum to enjoy, those gains free of tax.

And after that you have to, pay tax on.

So sometimes this, this, it can be worth planning.

All this stuff, particularly if you've made losses in some investments, you

can offset those losses versus gains.

you can also sort of, if you made long term, gains, you can sell down parts of

your investment to get up to the 3000 pounds per annum to use up your capital

gains tax allowance over a period of time.

So there's lots of planning you can do.

Now, the other thing to mention is, that, read Peter and I, invest in

options all the time and options are a great way to earn, recurring monthly

income by renting out your shares.

HMRC recognizes options income, not as income, but capital gains.

so whenever you receive options income, this comes under CGT, right?

so it falls under your 3000 pounds per annum allowance.

So that's the other thing to note.

and allowances can't be carried over into following years, but you can, if

you've realized losses, they can offset.

realized gains, but they have to be claimed within four years.

Okay, so that's another one, Peter, which, which I think it's important

for people to know about, not as attractive as your pension contributions

and your ISAs, but no, it's not.

but nonetheless, if you're in the opportunity to make, to make a

gain, make it tax free if you can.

So take advantage of it wherever you and the point about

options is a really good one.

The only other thing which we wanted to mention today finally was, the whole

sort of issue about state pensions.

Now there's a very big deadline coming up, right Peter?

Yeah, there is.

It's a real deadline.

this deadline does happen every year and the tax year.

But for this year, it's particularly important now just to explain the new

state pension was introduced in 2006.

Now you are always allowed every year to go back around six years

and make any national insurance contributions that you haven't made.

So why wouldn't you make any National insurance contributions?

Well, maybe you were not working for those years, or you were working

abroad, or maybe you were on, leave, or there could be a number of reasons.

but what the government allows you to do, and you can find all of

this information on gov co uk, but we include specific, are referred

you can check your national insurance contributions record.

on the government website.

So we'll include the, the exact URL for that.

You can see if you've got any gaps and then you can look to fill them.

You can also check your state pension entitlement.

Now, your state pension entitlement as of today, if you were retired

today, were to retire today, your full state pension entitlements would

be around 220 pounds a week exactly, or around 11 pounds a year now.

That's not going to be enough in many, in most cases, I'd suggest, to

live on, but it's a really helpful contribution to your overall retirement.

11 and a half thousand pounds per individual.

So for a couple it's 23, 000 pounds and now it's becoming a

little more of a meaningful number.

and I think it's always helpful to contextualize this number.

So if you try to think of the state pension as something equivalent

to a defined benefit pension, which many of us may have heard

before, which is guaranteed.

inflation proofed.

So if you were to buy an annuity that enabled you to get a guaranteed 11

and a half thousand pound pension that had the triple lock, so increases

with CPI or RPI, whatever the rate of inflation is at the time, it's going

to cost you in today's money around 300, 000 pounds, around 300, 000.

that's the minimum really.

And that is not, that's not an unsubstantial amount of money.

So think of it as a 300, 000 pound lump sum contribution

towards your overall pension pot.

and why wouldn't you go for that?

So you can find a lots of information on the gov website.

Now the reason why it's so timely this year is that new state

pension was introduced in 2006 and until the 5th of April this

year, you can make good any years.

That you have gaps in right back going back as far as 2006.

Okay, that goes away this is the end of this tax year, and you can only

make good six years going forwards.

Okay, so you can make good all of those years that you have any gaps

in between 2025 going back to 2006.

So it's a really strong reason for you to look at check your NIC record.

Check your state pension entitlement you're maximizing that's super useful

information, particularly, now and hopefully you're listening to this, or

watching this, prior to April the 5th is the deadline, Peter, did you say?

April the 5th this year, yeah, the end of next year, yeah.

Okay, fine.

And so we'll drop all the sort of, the links, in the show notes

for, and all the steps, right?

You need to go through.

yeah.

It's quite an easy process to go through.

There's some great helplines there and information from the government.

If you've got any particular questions, they'll be able to help

you with this, really quickly, And just to remind us, what's the sort

of maximum number that we, can get?

So in your state pension, and yeah, so your state pension entitlement, a full

state pension for a single person as of today is eleven and a half thousand

pounds around two hundred a week.

So if you go on to the government website and you can check your

pension entitlement, it will tell you what your You need to

contribute around thirty five years.

So thirty five years over the course of your working and as I say, normally

you can buy back up to six if you're missing those, but there's a deadline

now to buy back anything that you're missing until going back as far as 2006.

Yeah.

Okay.

So that's, hopefully that will be super useful for people just to check,

where you're at and just check there.

you have the option of adding contributions to get you to the

maximum level by those contributions through what they know and what's

known as a voluntary contributions.

Yeah, exactly.

by those years, you're Yeah.

Okay.

Thanks very much for highlighting that Peter.

Great.

And so look, today was really about letting you guys know,

what's out there and, it's not, as complicated as some people, think.

and really, the idea of getting hold of that free money, everything we've

talked about today is obtaining the free money or tax efficient contributions,

really maxing out, what you can get.

it's not often that we can get free money from the government.

so if you could do that combined with the incredible power.

Power of, of investing that money over a period of time for your financial future.

It just ticks so many boxes, you know, for us in a way that you

wouldn't possibly be able to imagine.

And you'll thank yourself, fast forward 10, 20, 30 years.

You will really thank yourself that you took, the opportunity to realize

what's out there, to your, yours and your family's financial future.

Yeah.

Good.

Well, thanks again, Peter.

it's not as sexy as, stocks and options and, ETFs and

funds, but in many ways it's.

even more powerful, right?

To do this in combination with all of those investments.

Absolutely.

it's what gives it a little bit of a turbo boost in terms of performance

through doing some good, tax planning.

As with, as always with this sort of thing, if you've got any questions around

your own individual circumstances, ask your accountant, yeah, your accountant

can be your friend, in these Great.

so thanks again, Peter.

I will see you next time.