Top tax year 'must dos'

You’ve got two weeks to get your finances in order. Better get cracking...

There won’t be fireworks (we don’t think) to mark the new tax year, but Scottish taxpayers in particular could see some interesting changes (PA)

It may not be marked by fireworks, a week off work or significant quantities of alcohol, but that doesn’t mean you can ignore the new tax year, which emerges fresh and new on 6 April. Invest a bit of time now and you’ll reap rewards for the next twelve months and beyond.

1) Maximise your ISA savings

The end of the tax year means this is your last chance to use your 2016/17 ISA allowance. If you don’t make use of it by 5 April then you won’t be able to use it – there’s no way to roll over your allowance to the following year.

The limit for this year is £15,240, which can be saved in cash, invested into stocks and shares or even invested in peer-to-peer lending via an innovative finance ISA. Even if you are not near the end of your allowance, it’s worth saving as much as you can this year to keep more of next year’s allowance free.

2) And plan your next ISA move

You may have left this year’s ISA to the last minute but that doesn’t mean you should do so the following year. Start looking for the right ISA account early on.

“It really can pay to make the most of your ISA allowance early in the tax year rather than waiting until the very end,” Maike Currie, investment director for personal investing at Fidelity International, says. “When investing, time really is a powerful factor. By starting at the beginning of the tax year, you give your money an additional 12 months to benefit from the magical power of compounding – that ‘snowball’ effect of building new investment returns on the investment returns you’ve already achieved.

“Of course, it can be difficult to stump up a lump sum at the start of the tax year to put into your ISA. Don’t let this put you off. A monthly savings plan is a simple way to start investing early and make regular contributions into your ISA.”

3) Brush up on ISAs

Okay, we will stop going on about your ISA allowance after this one, but there’s a lot going on in the world of tax-free savings and investments just now.

For example, instead of the relatively straightforward choice between cash, stocks and shares, and peer-to-peer lending, there’s also the new option of a Lifetime ISA, unsurprisingly dubbed a LISA.

These accounts are available to savers over the age of 18 and under the age of 40. Only £4,000 a year can be saved or invested into the account and the government will then pay a 25 per cent bonus, so an extra £1,000 a year.

Account holders can keep paying in until they are 50 but they can only withdraw the money in order to buy a property worth up to £450,000 or once they reach the age of 60 – if anyone makes a withdrawal before then they will pay a hefty penalty (25 per cent on the whole amount, which includes the original deposits).

4) Give away some money

If you are planning to reduce the inheritance tax due on your estate then it is a good idea to act swiftly to make the most of your 2016/17 allowances.

Inheritance tax is due on estates worth more than £325,000, although from April this year each person will also have a family home allowance of £100,000. However, each year everyone has a £3,000 “gift allowance”. So, if you have a big estate and you’re planning to pass on some wealth during your life then it’s important to use it – and you can use last year’s too if you failed to do so then.

You can make larger gifts, of course, but these are only potentially exempt and rely on you surviving for at least another 7 years or they will be considered part of your estate and are subject to inheritance tax when you die. It's cheery stuff .

Of course, if your estate consists of little more than an outstanding student loan and a fine collection of slightly tea-stained mugs then this is not so urgent. Maybe someone will pass on a gift to you. In which case you could remind them to do so before 6 April.

5) Make the most of your annual pension allowance

The end of the tax year is the final chance to make use of various allowances and that includes your annual pension allowance.

Steven Cameron, director of pensions at Aegon, says this is always a busy time as customers top up their self-invested pensions.

He explains: “The ISA season rush is well known, but from a pensions perspective customers also make higher one off contributions, paying on average 17 per cent or £1,500 more into their pension compared with the rest of the year.

“In recent years the annual allowance for pensions has been reduced and it now stands at £40,000, with lower levels for very high earners and those who have accessed pension freedoms. For those people who receive a bonus in the spring or who have savings set aside for the long-term, it may make sense to use up as much of their allowance as they can as any contribution will benefit from tax relief of 20 per cent or 40 per cent depending on the individual’s marginal rate of income tax giving the investment a significant uplift.”

6) Remember your Capital Gains Tax Allowance

The Capital Gains Tax (CGT) Allowance for the current year is £11,100 per person and, as with the ISA allowance, it has to be used now because it will not roll over.

Adrian Lowcock, investment director at Architas, explains: “The annual exemption from CGT is also available on a use it or lose it basis. Consequently, people with investments showing capital gains should consider crystallising gains up to the level of their exemption by 5 April. The annual exemption for individuals in the 2016/17 tax year is £11,100, while for trusts it is £5,550.”

7) Save for your kids

We promised not to talk about your ISA allowance anymore but there’s still time to mention your children’s tax-free savings, if you’re a parent.

Junior ISAs work the same way as adult accounts, except the savings limit is £4,080, rising to £4,128. And, just as with adult accounts, the allowance cannot be rolled over from one tax year to the next.

So, if you want to make the most of their allowance then it’s important to save or invest now, before the new tax year begins.

Just in case you’re feeling generous, bear in mind that 16 and 17 year olds can qualify for both a Junior ISA and an adult ISA allowance at once.

8) Know about tax changes in 2017/18

As well as making the most of your allowances in this tax year, now is a good time to brush up on what’s changing from April.

So, the income tax personal allowance is rising from £11,000 to £11,500, which means an extra £100 a year in the pockets of basic rate taxpayers. What’s more, the basic rate tax threshold is increasing from £32,000 to £33,500, which means you have to earn more than £45,000 a year before you pay the higher rate tax band, although that will be £43,000 in Scotland.

That’s right, Scotland is about to see some interesting developments. From April, the Scottish Parliament gets a whole raft of new powers and can set its own rates of income tax, which is why taxpayers north of the border will get a lower threshold for the higher rate of income tax.