5 ways to have a financial spring clean ahead of the new tax year

The new tax year (April 6) will bring with it a new set of allowances, but have you made the most of everything offered during this one?

If you haven’t done so already, now could be a good time to spring into action and tidy up your finances.

With inflation soaring and living costs expected to rocket further, households are understandably concerned how this will hit their finances.

Andy Dunbar, head of customer experience at abrdn (abrdn.com), shares some top tips on how to manage your money and make adjustments before the tax year ends…

1. Don’t forget your annual ISA allowance

ISAs ring-fence your savings from the taxman for as long as the money stays in its “wrapper”. The annual ISA allowance is £20,000.

If you’re an aspiring first-time buyer aged between 18 and 40, you can open a Lifetime ISA and put up to £4,000 in it every year. There are many different types of ISAs to choose from, including cash and stocks and shares.

Dunbar says: “Remember, the £20,000 limit applies to the total amount saved across all of the ISA vehicles in this tax year. You cannot open two of the same type of ISA in the same year, so you couldn’t pay into two cash ISAs within the same tax year, for example.”

2. Consider which ISA is right for you

The ISA you choose might depend on whether you’re saving for the short-term, or have long-term goals.

Dunbar says: “A cash ISA is a good option if you think you will need to access money at short notice, but the interest you earn will almost certainly be overshadowed by the rate of inflation. If you are looking to save for the longer term, a stocks and shares ISA could be a better option.”

Savers should bear in mind the value of stocks and shares ISAs can go down – as well as up. The financial markets have been volatile recently, but investing tends to be a long-term goal.

Dunbar adds: “Before investing into any ISA, always make sure you have some ’emergency’ money set aside in an account that can be easily accessed – just in case you need it quickly.”

3. Think about your pension

With inflation expected to climb higher this spring and major energy bill hikes to cope with, Dunbar says: “The last thing many people will be thinking about is putting more money aside every month.”

But he adds: “Increasing your pension contribution as you approach end of the tax year could pay dividends to your future. Even small boosts to your pension plan can go a long way.

“Much like your ISA allowance, you will also have an annual allowance on how much you can pay into your pension. This is generally capped at a £40,000 or 100% of your earnings – whichever is lower.”

4. Lucky enough to have had a bonus? Be savvy with it

If you’ve received a bonus, it might be paid at the end of the tax year.

Dunbar says: “This timing can sometimes be tricky when it comes to tax planning. For some, the extra money means they are pushed into a higher tax bracket, which could see allowances and benefits lost.”

If you don’t need to access the money, you could avoid these issues by “redirecting any bonus payments this year into your pension – whether it be setting up a private pension, or asking your employer to direct it to your workplace pension”.

5. Could you claim a tax windfall for working from home?

Millions of people have worked from home due to the impacts of the coronavirus pandemic. You may be able to claim some tax relief from HM Revenue and Customs (HMRC), making for a welcome cash bonus.

“The ‘work from home’ rebate applies even if you’ve only worked one day from home – and it’s easy to claim online,” says Dunbar.

The amount you could get is based on your tax rate – look at the government website for more information.