A new tax year means a whole set of new tax allowances, that we can make the most of to ensure that we keep as much of our hard-earned cash as we can.
Many people leave using these allowances until the last possible moment, but by making a plan in advance, your money has more time to grow if you are investing it, and you aren’t left with a scramble at the end of the year.
Here are four things you should do now to make the most of the next twelve months.
1. Set up direct debits into ISAs and pensions
Your ISA and pension allowances reset earlier this month, meaning that you can now pay a further £20,000 into your ISA and £40,000 into your pension before next April.1
Unless you have enough cash available to use up the entire allowance at once, consider setting up a direct debit to put money into your ISA and pension gradually each month. This removes the stress of trying to put money into the market at the best time. Your money is also invested for longer and has more time to grow than it would have if you waited until the end of the year to use your allowances.
2. Plan your gifting
Everyone is able to give away a certain amount of money each year that doesn’t get counted towards your estate for inheritance tax reasons. Your annual exemption is £3,000 a year, so planning to ensure you give this away is a sensible strategy.2
If you didn’t use last year’s allowance, you can carry this forward one year as well, so potentially a couple who did not use last year’s gift allowance could give away £12,000 this year without IHT implications.
3. Do your self-assessment early
Most people leave their tax return until the last minute, but if you are self-employed you are now free to file last year’s. If you are employed you must wait until your P60 arrives (by May 31 at the latest) but that still gives you plenty of time before the deadline.3
As well as being smug about filing early, you may save money this way. For a start, many accountants give discounts to early birds (because they aren’t as busy at this time of year), while if you are due a tax refund you’ll get it early. If you do need to pay tax, then you’ll have far longer to plan how to pay - you don’t have to pay up any earlier, despite having filed the return.
4. Make some capital gains
While it is easy enough to make sure you use ISA allowances at the end of the tax year, making the most of your capital gains allowance isn’t quite as simple.
Capital gains tax is paid on any increase in the value of assets including shares, property and personal possessions, but everyone can make £12,300 of capital gains every year without triggering the tax.4
That means that, if you are a couple you can make £24,600 of gains a year without hitting the tax threshold. Importantly, this allowance can’t be carried forward, and in many cases assets can take a while to sell, so if you have assets you feel might trigger these gains then starting the sale process early in the tax year gives you more time ensure you use the allowance.
If you’re selling shares or funds to make a profit, you could then buy them back within your ISA after using the CGT allowance, to ensure that you do not have to pay tax on any more gains in future.