Make the most of your money in 2015-16: The end of the tax year is the beginning of the next...

The new tax year brings with it a raft of new rules and regulations

Simon Read
Friday 03 April 2015 20:31
Make the most of your allowances as the new tax year begins
Make the most of your allowances as the new tax year begins

Sunday marks the last day of the 2014-15 tax year. That means it's the last chance to use up all your current tax allowances. The key one for most people will be the tax-free Isa allowance, although some may also want to maximise their contributions to their Sipp. If you're reading this on Saturday morning, however, you need to get a move on.

"Savers must ensure that they leave enough time for their application to be processed," warns Kevin Mountford, head of banking at Moneysupermarket. If you'd hoped to use the post, you've missed the boat, but you may still be able to make contributions in branches and online right up until the midnight deadline on Sunday 5 April.

But because the end of the tax year falls on Easter Sunday, all banks and building societies will be closed. "For those planning to pop in on Saturday, they need to remember that there will be shorter opening hours on that day, so will need to check timings before leaving home," Mr Mountford advises.

In case you missed it, changes announced in the 2014 Budget and introduced last July mean that you can now stash £15,000 in a cash or stocks and shares Isa. "Any savers who have cash stashed away but haven't used the allowance are just throwing money away to the taxman," says Mr Mountford.

Should you go for a cash or equity Isa? If you're unsure about which funds to put in a stocks and shares Isa, open a cash Isa first then switch into equity later on when you've decided which investments suit your purpose. In fact you can switch back and forth between cash and equity Isas, a flexibility which makes them more attractive.

Lock your savings up for the best cash deals: the average rate on the top five fixed rate Isas is currently 2.2 per cent, according to Moneyfacts. That's 0.7 percentage points higher than the average rate on the top 5 easy access Isas.

Meanwhile Alliance Trust Savings has reminded parents they can contribute to a Child Trust Fund before transferring it to a Junior Isa in the next tax year. A parent may be eligible to contribute £4,000 before 6 April and then contribute another £4,080 into a Junior Isa in the new tax year.

You'll be able to transfer kids' savings from a poor-performing Child Trust Fund to a Junior Isa next Monday. "Parents should review whether they have the right investment strategy with their child's money," says Danny Cox of Hargreaves Lansdown.

Looking ahead, your opportunity to make the most of the 2015/16 tax allowance starts on Monday. Then the maximum that can be invested in a tax-free Isa increases to £15,240. Meanwhile, Junior Isa and Child Trust Fund allowances will climb to £4,080.

Starting a tax-free savings scheme at the beginning of the tax year rather than waiting until the end to use your allowance has an obvious advantage: it gives you 12 months' extra potential for growth, which can be crucial depending on what type of investment you choose.

But there are a range of other tax changes which come into effect from Monday. Jane Moore, tax manager at the Institute of Chartered Accountants in England and Wales, said: "As usual, we are seeing a plethora of tax changes with the start of the new tax year and a lot of people will be affected."

The biggest change is around pension freedoms. From 6 April people aged 55 or more can take money from their defined-contributions pension pot without having to buy an annuity or put the money into drawdown. But there are major tax implications of doing so, as only 25 per cent of the pot will be tax-free. It's essential to talk to an expert before making a rash and potentially costly decision about your retirement savings.

Sticking with pensions, the law is also changing so that if an individual dies before the age of 75, they will be able to pass on their pension pot tax-free.

Meanwhile, the tax-free personal allowance rises from £10,000 to £10,600 on 6 April and, for those born before 6 April 1938, the so-called age allowance will be £10,660.

The starting rate of income tax on savings will be cut from 10 per cent to 0 per cent for savings income up to £5,000. The change means more people on lower incomes will be able to get their savings income paid without tax deducted. If you qualify you'll need to contact your bank or building society to ensure your interest is paid tax-free.

Married couples and civil partnerships will be eligible for a tax break as the new marriage allowance lets the lower-income partner transfer £1,060 of their personal allowance to their partner – saving up to £212. This isn't an extra allowance, just the transfer of part of an existing one, and can't be claimed if either partner pays more than the basic rate of income tax.

"Whether it is pensions or savings tax, make sure that you are aware of the changes and what they mean for you," advises Ms Moore.

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