The current tax year ends on 5 April 2011. With changes to personal allowances and tax scheduled to come into effect in just a matter of weeks, there are several steps you can take now to minimise the amount of income tax that you pay.
Our guide suggests three things you should do before 5 April.
Budget for the new tax regime
With several important changes coming into effect on 6 April, it is vital that you budget for the impending tax hikes and benefit cuts. Suggestions include:
- Budgeting for the National Insurance rise of 1 per cent
- Allowing for cuts to working and child tax credit (particularly for households with income over £40,000 or families with a child under the age of one)
- Preparing for the fall in Winter Fuel Allowance
- Preparing for the three year freeze in Child Benefit
Contribute to an Individual Savings Account (ISA)
Individual Savings Accounts offer tax-free savings to everyone. That means that you can receive interest on your savings without any income tax being deducted.
So, if you haven’t contributed to an ISA in the tax year 2010/11 you have until April 5th to do so. The maximum that you can contribute to a cash ISA before 5 April is £5,100. However, if you want to invest in a ‘stocks and shares ISA’ you double your allowance to £10,200.
Of course, you can maximise your tax free savings each year. After 6 April 2011 you will be able to contribute a further £5,340 to a cash ISA or £10,680 to a ‘stocks and shares’ ISA.
Use up your tax allowances
Our final piece of advice is to use up any other tax exemptions such as your capital gains tax (CGT) and inheritance tax (IHT) allowances.
You are allowed to make capital gains of £10,100 this tax year without paying any tax. So, you may want to consider selling some assets (such as shares, for example) in order to maximise your CGT allowance.
And, if you have a large estate and are worried about Inheritance Tax, you are permitted to give away up to £3,000 tax free each tax year. You can carry over any unused IHT allowance from the previous tax year and so if you have never made any such gifts, you could potentially gift up to £6,000 before 5 April 2011.
Bear in mind that there is also an IHT ’small gifts exemption’. This means that gifts of £250 are also free of IHT. Although there is no restriction on the number of small gifts that you can make, they must each be to separate individuals (for example you cannot combine the ‘small gifts exemption’ with the annual exemption to give someone £3,250.)