• Text size      
  • Send this article to a friend
  • Print this article

Take advantage of Budget bombshells

The end of the tax year is fast approaching and thanks to the Chancellor's Budget bombshells, taxpayers have more to think about than usual.

For many savers, the current £5760 ceiling on annual contributions into your cash Isa, rising to £5940 from April 6, is high enough, For others, the new £15,000 limit from July 1 will be highly welcome. Either way, savers should not sleepwalk into continuing with their existing Isa by paying in new amounts after next week unless they are sure the rate is competitive. Even a £1 contribution will reactivate the Isa for 2014-15, then it's too late to move to a better product for another 12 months.

Banks and building societies will be rushing to try to keep their money captive, partly by converting Isas to the new Isas. Halifax has already extended its window for topping up its fixed-rate Isas from 60 to 180 days to allow top-ups during July, while Skipton will open a top-up window, also during July. Other new Isas may emerge.

But one in seven existing Isas is paying below 0.5%, says best-buy website Savings Champion, when savers should be targeting instant access rates of 1.5% or more, and higher for fixed terms. Savings Champion's best buys include fixed-term products from Buckinghamshire Building Society (up to 3.32%) and Barclays (2.76%), with strings attached. And Susan Hannums from the website said that almost 30% of existing accounts are paying more than today's best buy variable Isa rate of 1.85%, so "savers could be better off staying put" rather than moving.

For parents there are also Junior Isas to think about, currently allowing a £3720 contribution for each child, rising to £4000 from July 1. The pot is not accessible until the child is 18.

Some taxpayers may be able to transfer savings and assets to a non-taxpaying spouse, to shelter them from income tax and capital gains tax, where each individual has an annual allowance of £10,800 (rising by £100 from April 6).

Any investor lucky enough to have those sort of gains from stocks and shares held outside an Isa may consider selling them this week to utilise the allowance before April 6, and reinvesting the proceeds next week in a stocks-and-shares Isa, with an immediate contribution limit of £11,880 (rising to £15,000 from July 1).

If you want to invest but haven't decided where, open the Isa with a cash deposit first, said Jason Hollands, managing director at Bestinvest. "Having secured your allowance, you can then invest it later when you are comfortable with your investment choices. Investing in a series of lump sums will also help reduce the risk of getting your market timing wrong."

Then there are pensions. Hollands said: "Some savers have been reluctant to invest in pensions, associating them with dull funds, opaque charges, lack of flexibility and the past requirement to buy an annuity."

But from April next year, personal pensions can be converted into cash by over-55s, so paying in now with 20% or 40% tax relief becomes more attractive - especially to over-55s likely to drop from higher to basic rate on retirement. The annual limit for contributions falls to £40,000 in the next tax year. Contributions of up to £3600 a year can also be made into stakeholder pensions for other family members.

For families with an earner between £50,000 and £60,000, personal pension contributions could reduce income to the point where child tax benefit can be reclaimed - worth up to £2450 for three school-age children.

Nick Fitzgerald, head of financial planning at Brewin Dolphin, said these are all examples of "the 'low effort' strategies that people should implement every year which, over time, can greatly enhance their savings".

Contextual targeting label: 
Finance

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

222925