YOU might celebrate new beginnings on January 1, but for accountants it’s April 6 — the first day of the new tax year. It pays to know the date as there are steps you can take every tax year to improve your finances. Here are five things to consider:
1. Use your ISA allowance
You can put £20,000 into an ISA every tax year, and this money can grow without incurring a tax liability until you remove it from the ISA.
‘Your £20,000 ISA allowance is a use it or lose it allowance,’ warns blogger Emma Maslin from The Money Whisperer. ‘You’ll have a brand new £20k allowance on April 6,’ she adds.
2. Top up your pension
Most people are allowed to put £40,000 a year into a pension (this goes down to as little as £10,000 for high earners). This allowance also resets every tax year, so use it if you can. If you haven’t used up allowances from other tax years, you can carry them forward, but only for a maximum of three years. Ian Brookes, financial planner with Charles Stanley, says that any unused allowance from the financial year 2015-6 must be used before April 5. ‘You must have maximised this tax year’s allowance of £40,000 first, before you can carry forward from 2015/16 against excess contributions paid this year. You must weigh up if this is affordable.’
3. Give £3,000 away
Making gifts can be a good way to reduce the value of your estate for inheritance tax (IHT) purposes. You can give £3,000 away to loved ones every tax year without the gifts being counted for IHT. ‘IHT is charged at 40 per cent on anything over £325,000 — meaning a good amount of the money you’d like to leave to loved ones could disappear,’ warns businessman Keith McNiven from Right Path Fitness. ‘Reduce this by giving a gift.’
4. Consider Capital Gains
Capital gains tax is charged at up to 28 per cent on any gain when assets, excluding your own home, are sold. But each of us has an allowance that resets each tax year.
Michelle Pearce-Burke, chief investment officer at Wealthify, says many people don’t make the most of the £11,700 allowance. ‘If you’re planning to sell any investments and you’ve not made use of your allowance yet this year, it’s worth doing so before the deadline.’
5. Think of the children
If you have a child under 18, they have an ISA allowance for a Junior ISA. It is £4,260 for this tax year. Michelle, at Wealthify, recommends starting a Junior ISA before the end of the tax year to make the most of this.