The end of the tax year is less than a month away, so there’s not long left to get your finances in order. Here are the tax-savvy things to do before the financial new year.
Sections
Maximise your tax-free savings
The Personal Savings Allowance (PSA) allows you to earn up to £1,000 a year in savings interest tax free if you’re a basic rate taxpayer, or £500 if you’re a higher rate taxpayer.
If you exceed the limit, you will incur tax on the interest, so it might be worth moving savings beyond this threshold into an ISA if you haven’t already used up your annual allowance.
In 2016/17 you can put up to £15,240 in an ISA, where it can grow tax-free.
You can save your allowance in cash, stocks and shares, an Innovative Finance ISA or a combination of all three.
But if you don’t use your allowance by midnight on 5 April you’ll lose it.
Read: Which ISA is best: Cash, Stocks & Shares, IFISA, LISA, Help to Buy or Junior?, The best Cash ISAs for the 2016/17 tax year and Beginner's guide to Stocks & Shares ISAs for some help working out where to put your money.
Get a better return with a Stocks & Shares ISA
Buy a car
If you want to buy a new car you should consider doing so before the new Vehicle Excise Duty rates come into force.
Unlike most tax changes, which are introduced at the start of the tax year; this one comes into effect on 1 April.
Currently, vehicles that emit less than 100g of CO2 per kilometre are exempt from road tax for life, which applies to around 75% of all new cars.
But from 1 April the Government is overhauling the car tax rules and only vehicles that produce no emissions, such as electric cars and those powered by hydrogen, will be exempt.
Vehicles registered on or after 1 April 2017 will pay tax on CO2 emissions in the first year.
Tax will kick in at 1g/km and will rise further and faster than before, so that cars emitting 131g/km will be taxed £200 instead of £130, those emitting 151g/km will be charged £500 instead of £180, those emitting 171g/km will be charged £800 instead of £295, and those emitting 191g/km will be charged £1,200 instead of £490.
The highest possible charge will continue to apply to those emitting over 255g/km, but that will rise from £1,100 to £2,000.
Tax for the following year will be charged at a flat rate of £140 for petrol or diesel cars purchased for under £40,000 or £450 if it cost more than £40,000.
Read more about this change in: New car tax rules April 2017: what changes to Vehicle Excise Duty mean for motorists.
Cash in on dividends
If you are due dividend income, make sure you take advantage of the £5,000 tax-free allowance for 2016/17.
The Dividend Allowance applies to dividends from a company or from investments that are not held within an ISA or pension.
Dividend income is taxed at 7.5% if you are a basic rate taxpayer, 32.5% if you are a higher rate taxpayer or 38.1% if you pay the additional rate of Income Tax if you exceed your allowance.
Like the ISA allowance, if you don’t use it you’ll lose it. Note that from April 2018, this allowance will be slashed to £2,000.
Stash some cash for your kids
Lots of banks and building societies offer children’s savings accounts, but a Junior ISA means that, not only are the profits tax free, but your kids can't touch the money until they’re 18.
The current Junior ISA tax-free limit is £4,080 in 2016/17 and like the adult version, it’s a ‘use it or lose it’ approach.
A JISA can be set up for a child by someone who has parental responsibility but friends and relatives can contribute to it, which might make it easier to make the most of the allowance.
It can be saved as cash, stocks and shares or a combination of both.
It’s worth bearing in mind that 16- and 17-year-olds qualify for both a JISA and adult ISA allowance, which means for 2016/17 up to £19,320 can be invested tax-free.
Take a look at: The best Junior ISAs for where to find the best deals.
Boost your pension
The annual pension allowance is the maximum you can contribute to any of your personal pensions in one year without attracting any tax.
For 2016/17 the annual limit is £40,000, but you can use the allowance from the previous three years, which means you could potentially pay £170,000 into your pension by carrying forward the limit you had in 2013/14, 2014/15 and the 2015/16 tax year.
Read more about this in: Pension carry forward: how to increase your contributions in the 2016/17 tax year.
Pension contributions get income tax relief at your marginal rate so it’s worth making the most of this benefit if you can.
Take control of your pension saving with a SIPP
Use the Marriage Allowance
The Personal Allowance (the amount of income we get before you must pay tax) is £11,000 for most this tax year, unless you earn over £100,000.
The Marriage Allowance allows you to transfer £1,100 of your Personal Allowance to your husband, wife or civil partner.
The move could reduce their tax bill by £220 each tax year.
One of you must be a non-taxpayer and the other on basic rate tax to be eligible.
If you were eligible for the Marriage Allowance in the 2015/16 tax year you can backdate your claim and reduce the amount of tax paid by up to £432.
Give away money
Inheritance Tax (IHT) is due if a person’s estate is worth more than £325,000 when they die. Currently IHT is charged at 40% on anything above this threshold.
But you’re allowed to gift £3,000 a year without attracting any IHT while you’re still alive. Previous years’ allowances can be rolled over up to a maximum of £6,000 per person.
That means for married couples and civil partners who have made no previous gifts, £12,000 could be given away this tax year completely free of IHT. Read How to cut your Inheritance Tax bill for more.
Shield your profit
Capital Gains Tax (CGT) is a levy on the profits your make when selling an asset that’s increased in value.
It’s charged at 10% (18% if the asset is residential property) for basic rate taxpayers or 20% (28% if the asset is residential property) for higher rate taxpayers.
You can avoid CGT on certain assets as well as on gains that are under your annual tax-free allowance.
The annual CGT exemption for individuals in 2016/17 is £11,100 or £5,550 for trusts but, like ISAs, if you don’t use it you’ll lose it! For more read Ways to avoid Capital Gains Tax.
Get a better return with a Stocks & Shares ISA
Invest in small companies
Venture Capital Trusts (VCTs) allow people to invest in small, expanding companies.
They’re attractive as dividends are paid tax-free, there’s no CGT to pay when you sell and each year investors can put up to £200,000 into new subscriptions and benefit from 30% income tax relief.
The VCT must be held for five years to qualify for relief though. This type of investment tends to be high risk so they won’t be for everyone, but if you’re a seasoned investor ready for a long-term commitment it might be for you.