Family finances: Take action now, or you could lose out

A review of your family's finances may be needed. David Prosser offers a checklist
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The Independent Online

Not all Budget measures take effect automatically. While you can't escape much of what Gordon Brown announced on Wednesday, there were all sorts of measures that will only affect those who take advantage of them - or who don't take evasive action.

TAX CREDITS

Brown claimed that four in five households would be better off as a result of the tax and National Insurance measures he has proposed for the next three years. But that assumes that families claim the tax credits the Chancellor is offering - and many currently don't.

In particular, four in 10 people entitled to the Working Tax Credit have not claimed the money. Broadly speaking, if you earn less than £15,000 a year you are very likely to be able to claim. If you earn more, check your entitlement (information from www.hmrc.gov.uk/individuals).

The take-up for Child Tax Credit is much better, at about 90 per cent. It is available to nine out of 10 families. Parents with household incomes of up to £58,000 a year are eligible to claim (£66,000 for families with a child under the age of one).

LIFE INSURANCE

The Budget small-print confirmed a measure mooted in the Chancellor's Pre-Budget Statement in December. Currently, savers who buy life insurance within a pension - even if they make no other pension contributions - are entitled to tax relief on the premiums at their highest rate of tax. This benefit has now been abolished.

If you've already taken out pension term assurance, as the benefit is technically known, take care. You're entitled to continue claiming the tax relief, but accountants Wilkins Kennedy warn that changing the terms of your policy could jeopardise that. Peter Goodman, head of tax, says: "As soon as they decide to vary their policy by increasing payments or lengthening its term, they will lose the tax breaks for all their payments into the policy."

PENSIONS

Savers who pay into a private pension plan other than a guaranteed final salary scheme may need to boost their contributions from next April. The cut in the basic rate of income tax means many people will end up paying less into their retirement savings.

This is because pension contributions attract tax relief at your highest marginal rate of taxation. If you're a basic-rate taxpayer, paying in £100 now costs you just £78, because the Government offers a top-up of 22 per cent, the basic rate. From next year, the basic rate falls to 20 per cent. If you don't make up the difference, your pension will be smaller than expected.

HOLIDAY HOMES

The Chancellor announced good news for thousands of people with holiday homes overseas. People who bought their homes through a company are affected. Until now, homeowners have faced a tax bill on the rental value of their homes, as they are considered to be receiving a benefit-in-kind from their companies.

The Chancellor said no such tax will now be payable. People who have been paying tax - and not all holiday-home owners have declared their properties to the taxman - may be able to claim a refund. Seek advice from your accountant.

Richard Mannion, a tax partner at Smith & Williamson, says holiday-home owners must satisfy four conditions to escape tax: "The company must be owned by individuals; it must exist to own the property; it must not have other assets; and it can't be funded by another company."

SAVINGS

The overall annual allowance for investments in tax-free individual savings accounts (ISAs) will rise to £7,200 next year. Within that, you'll be able to save £3,600 in a cash ISA, £600 more than currently. The increases are small, but still worth taking advantage of.

One other Budget wrinkle is that unit trusts investing in property are to get a new tax break. They'll no longer have to pay tax on returns from properties within their portfolios, which should boost the returns available to savers.

More cash for greener homes

* One area where more money is definitely available following the Budget is for people who want grants to help with the cost of installing renewable energy systems - such as solar panels or windmills - in their homes. The Chancellor promised to increase the funding for these grants from £12m to £18m a year.

* However, if you want to apply for this money, which is released in tranches each month, you will need to act quickly. When the most recent funding window opened this month, the grants sold out in just 75 minutes - so even though half as much money again is now available, you'll still need to be quick.

* Full details of how to claim the grants are available from the Energy Saving Trust (0800 512 012; www.est.org.uk) or the Low Carbon Buildings Programme ( www.lowcarbonbuildings.org.uk). April's allocation of money has been cancelled while the organisations work out how to channel the new funding, so the next grants won't be available until May.

* David Rothenberg, of accountants Blick Rothenberg, says Gordon Brown's plan to exempt "carbon-neutral homes" from the first £15,000 of Stamp Duty is pretty useless.

* "To satisfy the requirements the house must generate sufficient renewable energy to run appliances in accordance with a pre-determined scale based on the size of the house," he says. "Whether wind power or solar, the likelihood is that the cost [of installation] will be about £18,000 - the cost will always exceed the Stamp Duty saving."

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