Money: It's time for new year's resolutions

Steps you can take before Tuesday's Budget
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The Independent Online
What can you do to save money before the Chancellor's Budget speech on Tuesday? Here are some ideas.

Don't panic. Doing anything just to try to save tax is rarely a good idea; doing it in a hurry is even less likely to be sensible. First consider whether it makes sense from the point of view of your overall personal circumstances, and then whether it might save some tax as well.

If it makes sense do it now, not later. Conversely, if you were going to do something tomorrow, don't put it off until after Budget day just in case the Chancellor reduces the tax cost. Taxes do go down as well as up, but not as often.

Buying a house? Stamp duty is a nasty extra, which is not optional if you are buying a house costing more than pounds 60,000. The rate for more expensive houses was increased from 1 per cent to 1.5 per cent or 2 per cent in 1997 - and then it went up again to a maximum of 3 per cent last year. I think it is unlikely to go up again this year, but if you are just about to exchange contracts you might want to play safe and get the contract signed by Tuesday.

Give it away? Gifts do not currently attract inheritance tax, provided you survive for at least seven years afterwards. This rule may well be tightened on Tuesday, so if you were planning to give someone a special birthday present, give it early this year. On the other hand, if you were hoping to receive such a gift, it may be more difficult to persuade the donor to accelerate their generosity - but you could always try.

Vary existing bequests? At the moment the terms of a will can be varied for up to two years after death by making a deed of variation. It is possible that the Budget will ban future deeds, so if you were thinking of making one, see a solicitor tomorrow morning.

Put it away? Putting surplus cash in a pension scheme is one of the most tax-efficient moves you can make, although you need to be sure that you won't suddenly want access to your cash. Despite annual rumours of Budget changes, contributions to pension schemes still qualify for tax relief at your highest rate (up to 40 per cent).

Start a PEP or Tessa? Both PEPs and Tessas will be replaced by ISAs from 6 April 1999. The principles are broadly the same (no tax paid on income from investments held in the ISA) but the investment limits are lower. You have until 5 April to decide whether you want to make a purchase in the PEP/Tessa "closing-down sale". If you are not sure, it could be worth putting just pounds 100 or so into a Tessa as this will give you increased tax-free savings capacity for the future. You can continue to put money into an existing Tessa in future years as well as starting an ISA. The same is not true of PEPs since only money put in by 5 April 1999 can stay within the PEP.

Look at National Savings? There are various National Savings investments available. The returns are reasonable (if not wildly exciting) and safe; some are paid tax free, which can be useful for the elderly or for gifts to children. The rates available are adjusted from time to time and could well be reduced again after Budget day, given recent falls in interest rates.

What else might happen? The long-heralded 10 per cent rate of income tax might be introduced in this Budget - if only because there is a limit to how often the Chancellor can mention this without actually doing anything about it. Another strong rumour is that child benefit may be taxed for higher-rate taxpayers - very difficult to administer without making complex changes to the way in which married couples are taxed. There is, however, no action you can take to prepare for either of these changes - other than crossing your fingers.

My final advice is to make a New (Tax) Year's resolution: consider all your tax planning options as early as possible after 5 April and don't wait until the 2000 Budget is upon us before taking action.

n Heather Self is a chartered tax adviser and a partner with Ernst & Young. She is the vice-chairman of the Chartered Institute of Taxation's Technical Committee.

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