With the new tax year beginning on 6 April, now is a great time to think how you can better manage your personal finances and make the best use of your various tax allowances.From inheritance tax planning to claiming marriage tax breaks, UK consumers can potentially save thousands of pounds.
City A.M. has asked financial experts for their top tips to help you plan your new tax year’s resolutions.
*Read more*: A new tax year: Start it as you mean to go on
*Use your Isa allowance*
At the start of the tax year, everyone's tax-free individual savings account (Isa) allowance refreshes, meaning you can shelter up to £20,000 in cash, stocks and shares, or innovative savings accounts such as peer-to-peer lending products.
You do not have to pay any tax on interest from cash Isa savings, while investments in stocks and shares Isa avoid capital gains and dividend taxes. Remember to make full use of your allowance early in the tax year, rather than waiting.
“The mistake many make is leaving this to the end of the tax year. A couple can contribute £40,000 into Isas and shelter the returns from income and capital gains tax,” says Liz Bottomley, managing director of private banking at Arbuthnot Latham.
The earlier you make use of your ISA allowance, the earlier you will benefit from interest on your tax savings.
For income investors, changes to dividend rules will mean the Isa wrapper will become more attractive.
“The £5,000 tax-free dividend allowance will be cut to £2,000 from April 2018. The reduction means that tax-efficient wrappers such as Isas become more important for investors with dividends in excess of the allowance who are seeking to mitigate their increased tax exposure,” explains Bottomley.
Try to make regular monthly contributions to your Isa, suggests Juliet Schooling Latter, research director at Chelsea Financial Services.
“This year I’m going to invest in my Isa monthly. I usually put in two or three lump sums: one bigger one at the start of the tax year and then I top it up whenever I see a new opportunity or if the stock market has a wobble,” she says.
*Claim the marriage allowance*
If you're married and you or your partner earns less than the personal income tax allowance of £11,500, any excess allowance can be gifted to the higher earning partner, reducing their income tax.
Up to £1,150 of the allowance can be transferred, meaning a potential tax saving of £230 for basic rate taxpayers.
Despite this generous allowance, only 2.2m couples out of a potential 4.2m are claiming it, according to research by insurance and pensions provider Royal London.
“Couples can backdate their claim to include any tax year since 5 April 2015 that they were eligible,” says Helen Morrissey, personal finance specialist at Royal London.
“In April 2015, the allowance was worth £212, in April 2016 it went up to £220 and in April 2017 it was £230. So if a married couple/civil partnership claimed for the last three years then they stand to benefit by £662.”
*Do your tax return early*
Sam Slator, head of communications at FundCalibre, says her new tax year’s resolution is to try to complete his self-assessment tax return in April.
“Each year I end up doing it in a rush in January. And I’m not alone in leaving it to the last minute – according to HMRC more than 16,000 people submitted their tax return online between Christmas Eve and Boxing Day last year.
“There is no reason for me to make it a stressful experience, and by identifying if I owe tax early on, I can budget accordingly,” she says.
It is well worth doing your return early – once you know how much you owe, save that sum and earn interest on it before paying your bill. But make sure to pay before the deadline.
“It may not seem long ago since you filed your last tax return, but there is nothing to stop you getting your next one done earlier in the new tax year. Planning ahead can save you last minute stress and avoid a fine if you get yours in late,” says Julia Rosenbloom, private client tax partner at Smith & Williamson.
If you are self employed, remember to include “allowable expenses” to reduce your tax bill.
“These relate to the costs of running a business and include office costs such as stationery and phone bills, travel costs and utilities such as heating and lighting. If you want to check what constitutes an allowable expense, then call the self-assessment hotline,” says Morrissey.
*Give generously*
If you are at a later stage of life and are fortunate enough to have wealth and a family who will inherit it, you should consider how to reduce inheritance tax (IHT). One way is by giving gifts to friends and relatives.
“We all have a gift allowance of £3,000 a year (known as an annual exemption) meaning you can give away assets or cash up to this amount without incurring IHT. You can give away more than this, but IHT will be payable if you die within seven years of making the gift. You can carry over any leftover allowance into the next tax year which gives a maximum of £6,000,” says Morrissey.
On top of the exemption, you can give away as many gifts as you want worth up to £250, but these must be to different people, so keep a record of them.
*Plan your pension*
Making contributions to your pension is a tax-efficient way to save for your retirement, as tax relief is added to these contributions.
For higher earners with families, pension contributions can be used to recover child benefit payments worth £1,076 per child each year. This is because pension contributions can reduce your income below the £50,000 threshold, at which child benefit begins to be clawed back through the tax system.
Savers can contribute up to £40,000 to their pension each year, but beware the £1m lifetime allowance above which savers are penalised.
Rosenbloom says: “This is a complex area as pensions are subject to a lifetime cap as well as potential restrictions for higher earners, so you should get specialist advice before making any contributions.”*Read more*: Price hikes on TV licenses, water, and other bills come into force Reported by City A.M. 7 hours ago.