15 minutes – that's all it takes to get between Heathrow and central London on our high speed train services. It got us thinking… what else can you do in 15 minutes? This issue: sort out your savings.
Use your ISA allowances
Top of anyone’s list should be the ISA – Individual Savings Account. And for me that means a cash ISA. This year you can put up to £15,000 into one, so if you have spare cash and no ISA, act now! The door closes at midnight on April 5th. Moments later next year’s opens and you can save another £15,240 – that’s more than £30,000 earning interest tax-free within 24 hours! The best thing about cash ISAs? Not only is the money tax-free, but you don’t even have to declare it on your self-assessment form. With non-ISA savings, 20% is deducted automatically – and if you pay higher rate tax then another 20% (25% for top rate tax payers) is whipped off at self-assessment time. In the past only half the ISA allowance could be used for cash. Now all of it can be in cash. Get at least 1.5% instant access and 2%-plus if you fix for 2 years or longer – just watch out for conditions. Find best rates at the Savings Champion website.
Sharing with your kids
If you prefer some of your money invested in shares, and pay higher rate tax (or expect to pay Capital Gains Tax – CGT), then ISAs make great sense. Otherwise, the ISA wrapper makes no difference. If you're saving for your children, Junior ISAs and Child Trust Funds – depending on the child’s date of birth – allow you to salt away up to £4,000 tax-free in 2014/15 (£4,080 from April 6th). Most children pay no tax anyway. But if a parent gives them a large amount of cash, interest earned is taxed as the parent’s income if it exceeds £100 in the tax year – in a JISA or a CTF it’s tax-free. From April 6th, cash or investments in a CTF can be transferred to a JISA. If the money is invested rather than in cash, moving it to a JISA will probably mean lower charges and more choice – though there may be a charge for transferring.
Do you or your partner have an income over £50,000? Does either of you get child benefit? If yes to both then you must either give up child benefit or the higher earner will have to pay the high income tax charge. This will cancel out all the child benefit if the higher earner’s income is over £60,000, and take away some of it between £50,000 and £60,000. You can minimise the charge for 2014/15 if you act by April 5th to reduce your declarable income. Paying money into a pension or giving to charity before the tax year end will reduce the income that is counted when the child benefit tax charge is calculated – so could reduce the amount you have to pay. There's a handy government calculator to help with the sums.
Pension tax relief
Talking of pensions; remember you can put up to £40,000 into one each tax year. Under the new pension freedoms that begin on April 6th you can take that money straight out if you are aged 55 or more, and a quarter will be tax free. If you do take it out, you will probably find your allowance for putting money back into a pension is cut to £10,000 in future tax years. But the Government seems happy about anyone using the pension rules to save tax in this way.
Claim it back!
If you paid too much tax in the past you can only claim it back for the four previous tax years. So until April 5th you can claim overpaid tax from as long ago as 2010/11. If there’s a chance you or a relative paid too much tax – perhaps on savings interest or your PAYE code was wrong – then put the claim in on form R40. PAYE codes are notoriously inaccurate and can mean the wrong amount of income tax comes off your pay or pension. If you have the time and patience to check back to 2010/11, do it before April 6th.
Putting money into startup businesses can be exciting – and just might be profitable. It also attracts a government subsidy of up to 50% of your investment, which comes as a straight deduction from your tax bill when you do self-assessment for the year you invested the money. If you are a big Capital Gains Tax payer then there are further tax advantages, because losses (and there will be losses!) can be offset against other gains.
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