Happy new tax year!

Monday, 6 April marked the start of the 2009/10 tax year. How will it affect your finances?

A good time to plan ahead

The mad end-of-year tax rush is over and a new tax year has begun. To me, this is an ideal time to think ahead and make some financial plans for the year to come. Here are a few ideas to get you started, together with a listing of the new tax rates and allowances:

• Workers

The personal tax allowance (the threshold below which income tax is not due) rises to £6,475 from £6,035, an increase of £440. This saves basic-rate (20%) taxpayers £88 a year. For those aged 65 to 74, the allowance increases to £9,490 from £9,030, up £460.

In addition, the lower limit for National Insurance contributions (NICs) increases to £4,940 a year, from £4,680. Employees pay NICs at a rate of 11% of 'band earnings', so this £260 (or £5 a week) increase will save most workers the princely sum of £28.60 a year.

However, higher earners will be hit by an increase in the upper limit for NICs to £43,875 from £40,400. Above this threshold, .the NIC rate drops to 1%. Thus, this hike of £3,475 means that higher-paid workers could pay up to £347.50 a year in extra NICs. Then again, the threshold at which higher-rate (40%) tax kicks in rises from £34,800 to £37,400, which is a decent bonus for the better-off.

Although most well-paid workers will see hundreds of pounds wiped off this year's tax bill, there is some nasty news in the pipeline. In the 2010/11 tax year, those earning over £100,000 a year will receive a reduced personal tax allowance. This change will leave a £150,000-a-year earner almost £2,600 a year worse off. In addition, those earning £150,000+ will face a top tax rate of 45% instead of 40%.

What's more, in 2011/12, NICs will rise to 11.5% from 11%, but the lower limit will be raised in order to protect low-income workers. At the same time, the 1% rate of NICs will rise to 1.5% -- an increase of half (50%). In summary, the Chancellor has produced gain now, followed by pain tomorrow!

Therefore, you should consider increasing your pension contributions. You can put up to 100% of your earned income into a pension, subject to an upper limit. In 2009/10, this increases from £235,000 to £245,000, which is enough even for City high-flyers. The good news is that pension contributions up to these limits attract tax relief at your highest rate. This means that a contribution of £100 can cost as little as £60 after 40% tax relief is claimed.

• Parents and children

Child Benefit -- a tax-free sum paid to parents of children and young adults in further education -- will not rise this month. That's because it was increased three months earlier than usual, on 5 January. The eldest child gets £20 a week; other children get £12.55 a week. However, the maximum Child Tax Credit -- a benefit paid to working parents -- on offer rises £150, to £2,235 a year from £2,085.

• Pensioners

The good news for pensioners is that the inflation-indexed rise in the basic state pension is based on the Retail Prices Index (RPI) figure for September 2008. Although RPI is now 0%, it stood at 5% seven months ago, so pensioners can look forward to their basic state pension increasing by a twentieth from today. Thus, the basic state pension is up 5% from £90.70 a week to £95.25. Also, Pension Credit is up 4.8% from £124 a week to £130 for individuals, and from £189 to £198 for couples.

• Savers

Savers should make maximum use of their tax-free Individual Savings Account (ISA). In 2009/10, you can deposit up to £3,600 into a cash ISA and earn tax-free interest. I have high hopes that the Chancellor will increase this limit in his forthcoming Budget.

• Investors

If you prefer to invest in shares and other assets, rather than save in cash, then make full use of the £7,200 yearly allowance for shares ISAs. By buying shares inside this tax-free wrapper, you can avoid both Capital Gains Tax (CGT) and extra tax on your dividends (the income paid by shares).

In the Budget later this month, the CGT allowance should rise in line with inflation to around £10,000 (from £9,600 in 2008/09). Any gains above this level attract CGT at a flat 18%, which makes capital gains more attractive than income for high earners.

The threshold for Inheritance Tax (IHT) rises to £325,000 from £312,000 (twice this for married couples). Given that IHT can devour up to two-fifths (40%) of your assets on death, it pays to plan ahead to avoid it. Start by reading the tips in Ten ways to transfer wealth.

All change, please?

Finally, the Budget is unusually late this year. Normally, the Chancellor sets out his taxation and spending plans well before the tax year begins. However, thanks to the appalling state of the public finances, Alistair Darling will not present his second full Budget until 12.30pm on 22 April. Thus, faced with a huge gap between tax revenues and public spending, Mr Darling is sure to tinker with the tax system. So, watch this space for the latest news as soon as it breaks...

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