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The end of the tax year is just around the corner, so you’ve only got a few days to make sure your money is working as hard as possible for you before the new tax allowances and bands come in.
New allowances and rules come into effect on Tuesday 5 April, so now is the time to get your finances in order
- Pension Contributions and Flexible Pension Preparation – it’s worth checking your pension contributions every year, especially towards the end of the tax year.
Pension contributions can often be a sensible way to look after your tax liabilities, but don’t forget you should always do this whilst keeping in mind your full financial plan. You should also be mindful of the lifetime pension allowance, currently £1.25 million but set to be reduced to £1 million from April 2016.
Any pensions totalling more than that amount can be subject to further tax, which may impact on your financial planning overall. Make sure you check the current size of your pension if you’re considering making additional payments, as you may inadvertently push yourself into a taxable amount if you’re not careful.
• Use your Isa allowance Savers have 10 days to make use of their Isa allowance. The amount you can invest resets at the end of the tax year, and there’s no way of carrying it over. In other words, this is a “use it or lose it” annual allowance.
Those aged 16 and 17 also have a £15,240 Isa allowance, but may only sign up for a cash Isa. Meanwhile, parents can also put up to £4,080 into junior Isas for each of their children under the age of 18 (though you cannot have a junior Isa as well as a child trust fund).
Many people wait until the last few days as they deliberate over what to invest in, or whether they should invest at all, says Jason Hollands, managing director of investment firm Tilney Bestinvest. He argues that if you are mulling over whether to sign up for a stocks and shares Isa, the important thing is to secure your allowance now, “and that doesn’t matter whether you are bullish or bearish on the markets. The important thing is to fund your Isa with cash. You can then come back later and decide where to invest it when you are more confident in your plan.”
In this month’s budget the chancellor announced that the total amount you can save each year into all Isas will be increased to £20,000 from April 2017. And from the same date under-40s will be able to take out a lifetime Isa.
• Keep your child benefit
If you are a parent who earns a little over £50,000 a year, then now is the time to act if you haven’t already.
Lots of families have already been hit by the government’s “high income child benefit charge” – child benefit is clawed back via the tax system if either you or your partner have an “adjusted net income” of more than £50,000. That means total taxable income (ie, basic salary plus any company benefits, plus savings interest and dividend/rental income) minus things such as pension contributions and charitable giving.
The clawback is at the rate of 1% of the amount of child benefit for every £100 of income in excess of £50,000. So when your adjusted net income hits £60,000 you effectively lose all the benefit. If you earn, say, £53,000 or £54,000, you may be able to get yourself below the vital £50,000 threshold and keep all your child benefit.
• Reduce your inheritance tax bill If your estate, including your home, is likely to be hit by inheritance tax when you die, and you can afford to give some money away now, then do it.
IHT is paid if someone dies leaving an estate worth more than £325,000. The tax is charged at 40% on anything above that threshold, so reducing the value of the part of your estate that is above £325,000 will cut the IHT payable when you do pass away.
One way to do this is by using your annual exemption, which allows you to give away £3,000 of gifts each tax year (6 April-5 April) without being liable for IHT.
You can carry over any leftover annual exemption from one tax year to the next, but the maximum in one year is £6,000. On top of that you can make small gifts of up to £250 each to as many individuals as you like. Also, there is no tax on wedding or civil partnership gifts worth up to £5,000 to a child, £2,500 to a grandchild or great-grandchild, and £1,000 to anyone else.
A new allowance that applies when a family home is passed on to a child or grandchild is being phased in from April 2017 (it starts at £100,000, rising to £175,000 in 2020-21) and will sit on top of the existing £325,000 threshold. The government has claimed this will take the family home out of IHT “for all but the wealthiest”.
• Take advantage of employee benefits Many employers offer salary sacrifice schemes such as Cycle to Work which can save you up to 42% off the cost of a bike; or childcare vouchers which effectively allow you to pay for part of your childcare tax-free – the vouchers are worth up to £55 a week, or £243 a month. Don’t miss your chance to sign up – the deadline for registration is often around 31 March or 1 April.