Five-point checklist all savers should do before the end of the financial year
As the end of the tax year nears, now is the perfect time to take stock of your finances and ensure you are in a good position for the next financial cycle.
From 5 April, several key fiscal changes with come in for people of all income levels. Some of the early measures announced by chancellor Rachel Reeves at her October Budget will come in force, including an increase capital gains tax and stamp duty.
At the same time, tax allowances will be reset across the board. This means the end of March marks a final chance for savers to ensure that they have maximised the their potential for tax-free savings in the year.
The UK’s economic outlook heading into the new financial year is a mixed picture, with inflation steadily rising at the end of 2024 and in January before dropping to 2.8 per cent in February. These challenging financial conditions have led many consumers have to begin holding on to more of their cash as stubbornly high prices remain in place.
Against this uncertain economic backdrop, savers will want to be doing everything they can to ensure they are bolstering their finances against any more unwelcome turns. Here’s everything you might want to check off before the new tax year begins on 5 April.
Review your Isa allowances
A crucial first step is to check that you’ve fully utilised your Individual Savings Account (Isa) allowance for the year. Every taxpayer is able to add up to £20,000 per year across all their Isas and pay no tax on the growth or income received on it.
Because this allowance can be spread, a saver could add £10,000 to a Stocks and Shares Isa and another £10,000 to a Cash Isa in one financial year.
For anyone planning to add more funds to any of their Isas, there is no time to lose. There is no downside to maximising the allowance if you’re able to, so it’s wise to do this rather than sit on cash that is accruing no interest or dividends – the Isa allowance is a use it or lose it scenario.
Don’t forget the Junior ISA
For those with kids, there is another tax-free allowance you might want to be aware of. This applies to the Junior Isa (Jisa), an account specifically for children that has a lower annual limit than other Isas.
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
Get a free fractional share worth up to £100.
Capital at risk.
Terms and conditions apply.
This allows parents to deposit £9,000 a year on behalf of each of their children. They cannot access these funds until they are 18, but can have control of the account from 16.
As with a normal adult Isa, it is wise to maximise the allowance on a Jisa to ensure the most tax-free returns are being seen. Any parent who has maximised their own allowance and wants to invest further might consider this option.
Planning on buying a house? Look at the Lifetime Isa
Another opportunity for massive returns, the Lifetime Isa (Lisa) is a unique savings account that offers a massive ‘interest rate’. This is the government-backed scheme that will see any deposit matched by a 25 per cent boost, but with one key catch: the money must be spent on buying a first property.
Up to £4,000 a year can be deposited in a Lisa, which will be matched by up to £1,000 by the government. This level of increase on savings is unmatched by any other Isa or savings account you can get, but its limited purpose means it is not a viable option for everyone.
But for those who are looking to secure a first home in the next few years (which must be under £450,000 as per the rules of the scheme) investing in a Lisa is a very good idea. It’s also worth noting that Lisa deposits count towards your annual £20,000 Isa limit.
Pension planning will always pay off
Utilising your pension can be another wise way to find tax-efficient savings. Personal contributions made into pensions receive tax relief from the government, meaning there are savings to be made through long-term investment.
This means the government automatically gives back tax you would have paid as an additional deposit into your pension pot. For instance, for someone on the basic income tax rate of 20 per cent, an £80 deposit will be boosted to £100. Those on higher rates can also claim additional relief to reclaim the right amount of tax back.
Those nearer retirement age might want to prioritise this approach as they will reap the rewards sooner. However, it is never too early to begin boosting your pension, so for younger savers who have the funds to diversify, this could be a good option for them too.
Funds held within a pension also benefit from tax-free growth over time so any money invested in them will grow more quickly than if invested straight from income. This means anyone who is planning to make extra contributions to their pension pot will never suffer from investing as early as they can.
Have you maximised your state pension?
Unlike most other items to check off for the new financial year, this one is a last-chance situation. Most people under 73 have until 5 April to boost their state pension amounts for retirement in just a few straightforward steps.
This is the deadline to effectively buy back any missing national insurance years from 2006 to 2018 – a crucial element in securing the most out of the state pension. After this, you can only fill in the gaps from the previous six years.
People of all income levels are advised to check they are not missing out, as the state pension is paid to all qualifying pensioners equally. To pay for national insurance years or seek further guidance, savers can visit the HMRC website.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
