Budget 2022: how to start the new tax year!

While the recent budget announcements been met with disappointment, and inflation at its highest rate for decades, there are still some things you can do to make the most of certain allowances before the end of the tax year, according to investment and savings firm Nutmeg, and Which?.

Key budget take-aways

5p per litre fuel duty cut – estimated to save the average car driver £100 over the next year, while van drivers will save around £200.Raising National Insurance thresholds by £3,000 – if you earn between £9,600 and £35,000, you will pay around the same as you do now, or less if you are on the lower end of the scale. Those earning over £35,000 will be worse off, as the 1.25% increase in National Insurance outweighs the threshold change. 0% VAT on home energy savings products, including solar panels, for 5 years – previously set at 5%.We will have to wait until 2024 to see income tax reduced from the current 20% to 19%.

Here’s how you can claw back some additional savings:

Review your pensions

Pension contributions can benefit from tax relief which would see you receive a little financial boost from the government even if you’re self-employed – or not working at all.

In the current tax year, you can potentially invest up to £40,000 in your pension. And, if you have a ‘relief at source’ pension, your contribution is automatically topped up with an extra 25 per cent in the form of tax relief from the government. So, for example, an investment of £100 turns into £125 once in a pension.

The extra money is effectively a refund of the basic rate tax you’re assumed to have already paid. If you’re a higher rate or additional rate taxpayer, the tax ‘refund’ is greater, and you can claim back the difference on your tax return.

Use your ISA allowance

You’ll get another allowance in the next tax year, but your current allowance, or any unused portions of your allowance, won’t roll over. So, use as much of your ISA allowance as you can. In the current tax year, a maximum of £20,000 can be put away tax-efficiently across different types of ISAs: cash, stocks and shares, Innovative Finance and Lifetime ISA.  

You won’t pay tax on income or capital gains from your ISA investments, which you might have to do if you saved or invested that money in a different kind of account.

Consider a Junior ISA

With the cost-of-living soaring, and whether for children or grandchildren, setting up a Junior ISA could be a smart move, and help your young adults afford a car, deposit for a home or even university from the age of 18.

You can invest up to £9,000 a year in a Junior ISA – and you can set one up on their behalf, although it will belong to the child. At 16, your young person is allowed to manage the Junior ISA themselves and, at 18, they can withdraw the money if they choose. This could be a great option for birthday or Christmas financial gifting from family and friends over the years, just check that your Junior ISA provider permits this.

Know your capital gains threshold

If your only investments are in an ISA or pension, you probably don’t need to worry about capital gains tax. But if you have company shares, a second home or valuable artworks, for example, you should pay attention to your yearly capital gains tax allowance, which is currently £12,300.

You may be liable for capital gains tax if you sell or otherwise ‘dispose’ of assets at a profit, if you sell your holiday home, for example.  For this reason, it may be worth spreading the disposal of large assets over different tax years as opposed to several in one year to stay within the threshold.

If you have a spouse or civil partner, you may be able to give assets to them without incurring capital gains tax – they effectively share their capital gains tax allowance with you but speak to an expert first if you are considering this route.

Talk to a pro!

These are testing times, so you may want to consider other ways to save during this tax year, or how to plan for the next. You may be looking to release equity to help with the increased cost of living, or to move home, so do speak to a financial advisor before you make the move.

If your circumstances do changes, whether you decide to move to a more energy-efficient home this year, downsize, upsize, switch to a more economical vehicle, there are likely to be ways to save money on your insurance premiums as well. If you are considering making some changes over the next year, we’re here to help. Pop into your local branch or give us a call.

You may also be interested in some of our previous money-saving blogs about our team’s favourite voucher codes, direct debits you didn’t know about, and discount clubs. If you feel they may be useful to someone you know, pass them (and the savings) on.