A finance expert has given five tips that everyone should do before April 5 in order to get the most out of their money. Brian Byrnes, the head of personal finance at Moneybox, a digital wealth manager, has explained to us just why the end of the tax-year matters.
Byrnes said: “As we head towards the end of the 2022/23 tax year, now is the time to check you’re taking full advantage of the tax wrappers available to ensure your money is working as hard as it can for you.
“We can all be guilty of leaving things until the last minute and committing to sit down and spend some time reviewing and planning our finances can be a struggle. Tax allowances do not roll over into the next tax year, so it’s a case of ‘use it or lose it’.
“These five top tips will help you understand how tax year end might affect your finances and what simple steps you can take that might save you money and make you money.”
Five things everyone should do before April 5
Make the most of your personal savings allowance
While your personal savings allowance differs depending on which tax band you are in, all those in the basic tax band rate can earn up to £1,000 in interest on their savings without having to pay any tax on it. If you fall into a higher tax rate, this goes down to £500.
It is important to find out what tax rate band you fall into before you try and take advantage of the allowance before the end of the tax year. And with the rates of savings accounts rising over the last year, it is much easier to breach the personal savings allowance, which might make looking at an ISA more important.
Use ISAs to protect your interests and returns from the tax man
With interest rates having gone up in the last year, we’re all going to make more earnings on cash savings. But if those aren’t in a tax-wrapped account, there is a risk you could reach the threshold where you have to start paying tax on interest.
An ISA is a tax-wrapped savings and investment account that lets you deposit up to £20,000 every year, in addition to your personal savings allowance, before you have to pay any tax on your interest earned or investment returns. This is a great benefit of ISAs compared to other options where you might have to pay tax on your gains and savings.
Check your pensions contributions to maximise the ‘free money’ you get via pensions tax relief
If you’re a UK tax payer on the basic tax rate, you get 20 percent tax relief which essentially works as a top-up on your contributions. So, if you’ve contributed £4,800 to your workplace pension in the last year, the government will give you free money in the form of a £1,200 top up, bringing your total workplace pension contributions up to £6,000.
This tax year, you can deposit £40,000 or money equal to your salary, whichever is lower, into your pension savings, and next year it’s rising to £60,000. But if you don’t use your full £40,000 allowance, you can carry it forward to next year to help you get the full benefit of tax relief.
This “carry forward” applies to the last three years of unused allowances, as long as you’ve had a pension during that time. You also don’t pay investment tax on the growth within your pension, so both of these combined make your pension one of the most tax-efficient ways to save money.
Claim your trading allowance if you’re self-employed or run a side-business
If you run a side business or are self-employed, you have a trading allowance, which means the first £1,000 you earn is tax-free. You should see if you have any of this left to claim before the new tax year starts on April 5.
Also, if you’re self-employed you might have a self-invested personal pension, known as a SIPP. If you do, it is good practice to ensure you’ve made use of your annual pension allowance before it resets.
You can contribute up to £40,000 a year on your SIPP, and the government will give you a top-up of at least 25 percent on your deposits. This means that if you invest £4,000, the government will top up with at least an extra £1,000.
Max out your Lifetime ISA government bonus if you’re saving for your first home
If you are looking to buy your first home in the future, a Lifetime ISA (LISA) offers a 25 percent government bonus for every £1 saved, up to a maximum of £4,000 every tax year, which could mean up to £1,000 extra a year. You can choose between a Cash LISA or a Stocks & Savings LISA depending on your savings timeline, and you earn interest both on investestment growth on both your deposits and the government top-up.
A LISA can also be used to boost your retirement savings and benefit from the 25 percent top-up bonus up to the age of 50. But if you choose to withdraw money from your LISA for anything other than pensions or your first home, you will have to pay a 25 percent penalty fee.