As the tax year draws to a close, it’s an opportune moment to evaluate your financial situation and ensure you’re adequately prepared for the upcoming financial cycle.
Starting 5 April, several significant fiscal adjustments will take effect, impacting individuals across all income brackets. Some of the early measures introduced by Chancellor Rachel Reeves during her October Budget will be enacted, including an increase in capital gains tax and stamp duty.
Additionally, tax allowances will be reset universally. Thus, the end of March signifies a final chance for savers to ensure they have maximized their potential for tax-free savings this year.
The UK’s economic outlook as we approach the new financial year presents a mixed scenario, with inflation continuing to rise toward the end of 2024 and in January before experiencing a drop to 2.8 percent in February. These tough financial conditions have caused many consumers to start holding on to more of their cash as persistently high prices endure.
In light of this uncertain economic environment, savers should take proactive steps to strengthen their finances against any further unwelcome developments. Below is a checklist of items you should verify before the new tax year starts on 5 April.
Review Your ISA Allowances
The first crucial step is to ensure you have utilized your full Individual Savings Account (ISA) allowance for the year. Every taxpayer has the ability to add up to £20,000 per year across all their ISAs, with no tax levied on growth or income earned.
Since this allowance can be allocated across different types of ISAs, a saver might choose to contribute £10,000 to a Stocks and Shares ISA and another £10,000 to a Cash ISA within one financial year.
If you’re contemplating adding more funds to any of your ISAs, the time to act is now. Maximizing this allowance is beneficial if you can—it’s better than letting cash sit idle without accruing interest or dividends; the ISA allowance operates on a “use it or lose it” basis.
Don’t Forget the Junior ISA
If you have children, another tax-free allowance to consider is the Junior ISA (JISA), which is specifically designed for minors and has a lower annual limit than standard ISAs.
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Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
Go to website
This account enables parents to deposit £9,000 annually on behalf of each child. While the funds cannot be accessed until the child turns 18, parents can have control over the account starting at age 16.
Similar to a conventional adult ISA, maximizing the JISA allowance ensures the highest possible tax-free returns. Parents who have already reached their own allowance and want to invest further may find this option appealing.
Planning to Buy a House? Consider the Lifetime ISA
The Lifetime ISA (LISA) is another excellent savings vehicle, offering significant benefits. This government-backed account features a substantial return rate, where deposits receive a 25 percent boost, provided the funds are used to purchase a first property.
Depositing up to £4,000 a year into a LISA allows for a maximum government match of £1,000, creating unmatched growth in savings compared to other ISAs or savings accounts. However, its specific purpose may not suit everyone.
However, for those planning to secure their first home within the next few years (with a property price cap of £450,000 under the scheme), investing in a LISA is highly advisable. It’s important to note that LISA deposits also count toward your annual £20,000 ISA limit.
Pension Planning is Always Beneficial
Utilizing pensions is another smart way to save tax-efficiently. Contributions made into pensions receive tax relief from the government, leading to substantial savings through long-term investment.
This tax relief means the government essentially adds back the tax you would have paid as an extra contribution to your pension fund. For example, a deposit of £80 for someone in the basic income tax bracket of 20 percent will be increased to £100. Higher-rate taxpayers can also claim back additional relief for the relevant tax amount.
Those closer to retirement may wish to prioritize this strategy to see the benefits sooner, but it’s never too early to start increasing your pension—for younger savers with available funds, this could be a valuable option too.
Funds in a pension also benefit from tax-free growth over time, meaning investments grow more rapidly than if made directly from income. Thus, for anyone looking to make extra contributions to their pension, early investment is never detrimental.
Have You Maximized Your State Pension?
Unlike most other items to address in the new financial year, this is a last-chance situation. Many individuals under 73 have until 5 April to enhance their state pension amounts for retirement through straightforward steps.
The deadline to effectively “buy back” any missing national insurance years from 2006 to 2018 is approaching—a crucial factor in maximizing state pension benefits. Following this date, only gaps from the past six years can be filled.
Individuals across all income levels are urged to verify if they’re missing out, as state pension payments are equally provided to all eligible pensioners. To pay for national insurance years or to seek further information, savers can visit the HMRC website.
When investing, your capital is at risk and you may receive less than your invested amount. Past performance doesn’t guarantee future results.
