Happy new tax year!

Published:
03 April 2012
Topic:
News,Money,Credit Cards,ISA,Savings

The start of the new tax year (2012/2013) arrived on April 6, which makes it an ideal time to get your personal finances in order.

However, worrying research from Standard Life shows that, of a poll of more than 2,000 people, the majority (69%) don't know when the tax year ends.

More than one-in-10 (15%) think it falls after April 5, while one-in-12 (8%) put it on April Fool's Day (April 1). But, in fact, right now is the time to start organising your finances into a shape that takes maximum advantage of the tax breaks available over the next 12 months. So where do you start?

Make use of your fresh ISA allowance

A good place is with ISAs. It's now too late to use your tax-free ISA allowance for the 2011/2012 tax year of £10,680. Of this sum, £5,340 could have been held in cash and the remainder in stocks and shares - or alternatively, the whole sum in stocks and shares.

If you tie your money up for longer you will earn more interest but bear in mind that what looks like an attractive rate now may not be so by the time your fixed rate ISA matures in say, three, four or five years.

If you don't have the ready cash as a lump sum and want to pay in your £5,640 allowance in dribs and drabs, you will need to take an easy access ISA instead.

Market leading deals include Santander's Direct ISA issue 9 which pays 3.30% with a 2.80% bonus on minimum investments of £2,500. The deal accepts transfers in up to £29,999.

If you have less than this, Principality's e-ISA issue 3 pays 3.10% with a 1.30% bonus which can be opened with just £1 and accepts transfers in.

Make the most of your pension allowance

Every tax year, our friends at HMRC set down a maximum annual allowance that we can pay into our personal pension pots and earn tax relief. This has reduced dramatically in recent years down to a current £50,000.

However, it's still worth taking full advantage of, as pensions are one of the most tax-efficient means of saving.

This is because, while you pay income tax on your wages before they are paid into your pension scheme, the pension provider will then claim that tax back from the government at a basic rate of 20%.

This means that, for every £80 you pay into your pension, you are effectively paying in £100. If you are a higher-rate tax payer you may be able to claim further relief.

Even though the annual limit of £50,000 has stayed for the new tax year, April 5 is the perfect trigger to assess your pension options. If you are already saving into a pension, try to increase your payments as and when you can; or pay in a lump sum such as a bonus or inheritance.

If you haven't yet started a pension, give it some serious thought. You can pay in as little as £20 a month with a simple stakeholder pension.

According to the Pensions Advisory Service, a benchmark for a decent standard of living in retirement means you need to save half of your current age as a percentage of your salary.  For example, if you are aged 30, you should save 15% of your pay and if you are 40, you should save 20%.

For more information and independent advice on pensions, visit our pensions channel.

Check you are on the right tax code

Millions of people will receive their new tax codes in the run up to the new tax year and whether or not you are among them, it's worth checking to see if yours is correct.

This is especially the case if you've recently changed jobs or received a new source of income. If you are on the wrong tax code you could be over-charged each month or be underpaying and risk an unexpected bill further down the line.

Tax codes are usually made up of a series of numbers, which denote your personal allowance, followed by a letter which represents a particular bracket you fall into - for example, your age or your living or working arrangements.

The basic personal allowance for this tax year (which is the amount you can earn before paying tax) is £8,105. This means the most common tax code, for those under 65 with one source of income and paying basic rate tax, is 810L. 

If your tax code looks wrong, call HMRC with your tax reference and National Insurance numbers to hand. You can read more about this in Les Roberts' article on tax allowances for this financial year.

Remember also, that - while an increase in your basic personal allowance is a good thing - not every change in this new tax year is for the better. From April 6, some households will, for the first time, start to suffer the effects of benefit cuts that were announced in last year's Budget. You can read more about this in Mark Hooson's article, What benefit changes take effect in April 2012?

Make sure you are on the best deals

But any time of year is a good one to check you are not paying over-the-odds in any area of your household finances. 

For example, moving a credit card balance of £2,000 from the current average rate of 17.32% APR to the market-leading, 22-month Barclaycard Platinum Card with Extended Balance Transfer, would save you £243.85 over the next 12 months alone, even when taking the 2.9% balance transfer fee into account.

And if you switch your energy supply to dual fuel and online payments, you could save an average £224 over the next 12 months, compared to paying by standard quarterly cash and cheque (QCC) tariff. You can compare the best energy providers here. Read about this and how much more you can save by being your family's own Chancellor in Jessica Bown's article.

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About This Author

Laura Howard

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Content Editor, Money and Lifestyle

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