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Shrove Tuesday is one of the most beloved holidays in the Christian calendar and this year it takes place on 1 March. You probably have fond memories of this day, whether that’s teaching your children to flip pancakes or sitting down with your loved ones to eat some with generous helpings of sugar and lemon juice.
Historically, the tradition of this holiday came from the desire to use up a household’s perishables before Lent. This lesson of making the most of what you have can also be a useful one when managing your finances.
If you want to grow your wealth in the most effective way, read on to find out what Pancake Day can teach you.
The spirit of Pancake Day is to make the most of what you have
Shrove Tuesday, or Pancake Day as it’s more commonly known, marks the first day before Lent. This is, of course, the 40-day period before Easter in which people try to give up unhealthy food or a bad habit.
While many Brits struggle to keep their Lenten promises, people in the past took them much more seriously. Of course, it’s probably much easier to keep a vow when there’s the threat of eternal hellfire to worry about!
To help them avoid the temptation of breaking their fast, people would use Shrove Tuesday as a chance to make the most of any perishables in the larder. They would eat things like eggs, butter, and anything sweet so that they wouldn’t go to waste.
This lesson about “making the most of something” can be useful if you want to manage your finances in the most effective way.
Maximising your allowances can help you to grow wealth in a tax-efficient way
When saving for the future, taxes can eat into your hard-earned income and make it more difficult to grow your wealth. This is why it’s important to take full advantage of your allowances, so you can minimise your tax bill.
For example, if you want to grow your wealth in a tax-efficient way, using an Individual Savings Account (ISA) can be a great way to do so. The main benefit of using these savings vehicles is that any returns are paid free of Income Tax or Capital Gains Tax.
However, because of these valuable benefits, there is a limit to how much you can contribute into your ISAs in a given tax year (6 April to 5 April). In the 2021/22 and 2022/23 tax years, this stands at £20,000 a year.
If you want to grow your wealth effectively, making the most of this allowance can be very useful. However, it’s important to remember that this allowance doesn’t roll over, so if you don’t use it all, you lose it.
In the same vein, you may also want to bear in mind your annual Dividend Allowance. As the name suggests, this is how much money you can make from dividends before you have to pay tax. In the 2021/22 tax year, it stands at £2,000.
This can be a useful way to reduce your tax bill, which is why making the most of your allowance can be a smart idea.
For example, if you’re likely to go over the limit, you may want to transfer some of your dividends to your partner. By making the most of their allowance, as well as your own, you can reduce your tax bill and save more of your hard-earned wealth.
You can use your annual gifting allowance to minimise your Inheritance Tax liabilities
Another important allowance to bear in mind when managing your wealth is your gifting allowance. This can be useful if you want to reduce your Inheritance Tax bill while helping loved ones financially.
Each tax year, you can gift a total of £3,000 and can choose to give that to one person or share it between many. This can be a useful way of mitigating Inheritance Tax when you’re getting your estate in order.
If you don’t use the full amount at the end of the tax year, your unused allowance will roll over. However, it’s important to remember that it only carries over for one year and after that, you lose it.
When it comes to reducing your tax bill, there are many potential pitfalls that you could run into. This is why you may benefit from seeking professional advice.
When you work with a financial planner, they can help you to make a properly informed decision about your finances, helping you to grow your wealth in the most tax-efficient way.
Get in touch
If you want to know more about how you can make the most of your tax allowances, we can help. Please email enquiries@metiswealth.co.uk or call 0345 450 5670.
Please note:
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
