The new tax-year: what’s in, what’s out and lessons learnt
Monday, April 7, 2014
Everyone knows the often quoted line that Benjamin Franklin adapted from Daniel Defoe's The Political History of the Devil: "The only things certain in life are death and taxes". It's with this old adage in mind, that Foresters Friendly Society provides a summary of lessons learnt and important changes to bear in mind going forward into the 2014/15 tax year.
1. Be prepared
Of equal certainty as paying the taxes themselves is the last minute panic as vital tax planning measures are left to the eleventh hour. There is real merit in maximising allowances as early as possible and this lesson is especially pertinent when it comes to ISAs. The sooner you begin putting money into an ISA, the longer it will be invested and therefore working for your benefit. It is often recommended that money is drip fed into an ISA on a regular basis* to avoid poor market timing and Foresters Friendly Society allows monthly direct debt payments within the Foresters Stocks & Shares ISA from as little as £50 per month.
2. Maximise your allowance
Making the most of your personal allowances is an often underestimated and ignored measure. If you have a partner then you can ensure you both optimise your income tax allowances. For example, if you're a taxpayer and your partner isn't, then transferring savings and/or investments into their name could save you tax on future income. The same applies if one of you is in a higher tax band than the other.
3. Check your tax code
Now is an excellent time to check that you have not paid too much tax or have an incorrect tax code. Look at how much tax you've paid on earnings (if you're employed you can use the P60 form your employer gives you) and other sources of income such as pensions and savings accounts then check whether it's right. If you complete a self-assessment tax return you should do this in due course anyway.
4. New tax-year, new rules
Looking at some of the changes to be introduced, following this year's Budget, there were land mark reforms to ISAs with the introduction of a new 'enhanced' wrapper. The maximum that can be saved into an ISA will be upped to £11,880 from 6th April and then increased further to £15,000, effective from 1st July 2014.
The first day of the new-tax year on the 6th April will also see the annual allowance that can be paid into a Child Trust Fund (CTF) increase to £3,840. This will increase again from the 1 July to £4,000. For those children who were eligible for CTFs, it provides a tax free way of saving which can be used to save for your child's future and should be another tax-planning consideration.
The 6 April will also see the Pensions Lifetime Allowance (LTA) drop from £1.5m to £1.25m. Another change will see the annual pension allowance fall from £50,000 to £40,000 which is something savers need to remember. That said, if you did not 'max out' your allowance last year, you can carry forward your unused allowance to this year.
Commenting, Neil Armitage, Marketing Director at Foresters Friendly Society said: "It's essential to fully understand any changes as we move into the new tax-year. Tax is a complicated issue but it is important to understand the rules and make the most of the benefits available to avoid paying more tax than is actually necessary."
You should be aware that you may not get back what you pay into your ISA dependent on the investment term and investment conditions on withdrawal, and that tax rules may change and will depend on individual circumstances.
* Interactive Investor - Regular ISA saving beats lump-sum investing