Seven things to do before the tax year ends

The countdown to 5 April is on. But a bit of tweaking now could make all the difference to your finances in 2022/23 and beyond

Planning ahead can help you save some pennies in 2022 and beyond (PA)

There are only a few weeks before the end of the tax year, so now’s the time to ensure your finances are in the best possible shape before 5 April.

Finding the best cash interest rates, making the most of tax-efficient products, and reassessing longer-term investment plans should be your priorities.

This annual monetary overhaul will also help counter the effect of tax increases coming into force this year and rising living costs.

Step one: overhauling the budget

The first step is analysing your income and outgoings. Make sure you clear any outstanding debts before starting to save as these rates are often very expensive.

Set a realistic budget so you know how much you have left over each month. Ideally, set up a standing order into a savings account so you’re putting money away almost without realising.

Tim Bennett, head of education at Killik & Co, says: “Even a small amount, paid in on a regular basis, could make a huge difference to someone’s future financial choice, independence and security.”

Savings rates

Inflation is eroding the value of our savings. That’s why it’s so important to make sure your money is earning the best rates, according to Rachel Springall, a finance expert at Moneyfacts.

“Consumers would be wise to review the rate on any existing savings account and consider switching to a better deal due to recent improvements to the top rate tables,” she says.

The best easy access accounts are offering 1 per cent AER, according to Moneyfacts data, while you can get over 2 per cent if you agree to lock the money away for four years.

“As inflation continues to soar and the Bank of England raises interest rates, it will be interesting to see how savers will respond and where they place their cash,” adds Springall.

Use your ISA allocation

It’s all about making the most of your annual tax allowances before the end of the tax year. For example, adults can put up to £20,000 in individual savings accounts (ISAs).

These products enable your money to grow tax-free. You can opt to keep your money in a cash ISA or embrace stock market exposure through a stocks and shares ISA.

According to Sarah Coles, personal finance analyst at Hargreaves Lansdown, the choice depends on your personal circumstances.

“If you’re worried about investing a lump sum, you can still use your allowances, by parking the money in cash within an ISA now, and then drip-feeding it into the market throughout the year,” she says.

Other considerations

You should bear in mind other tax allowances before 5 April, according to Coles.

“If you’re retired, have already taken the tax-free cash from your pension, and are taking an income from ISAs, you may not have used your personal allowance for this year,” she says.

It’s also worth considering any investments held outside of an ISA.

“Think about your capital gains tax (CGT) allowance, and whether to crystalise any gains in the current tax year, to protect you from CGT further down the line,” she adds.

Making gifts

You may also decide to be generous – especially if your overall estate would be liable for inheritance tax, according to Justin Modray, founder of Candid Financial Advice.

“If you’re concerned inheritance tax might be an issue you can make annual gifts totalling up to £3,000 and carry forward last year’s allowance if unused,” he says. “Plus, you can make as many gifts of up to £250 per person as you want.”

While you’re unlikely to earn a huge sum on a savings account right now, you’ll also have the benefit of seeing your loved ones enjoy the money while you’re still alive.

Longer-term savings

Scott Gallacher, a financial adviser at Rowley Turton, believes pensions should also be a consideration at this time of year.

“Higher earners should consider maximising their pension contributions to benefit from higher rate, or even additional rate, tax relief,” he says.

He also highlights a planning issue. “You don’t always know your income until the tax year has finished,” he says. “Consequently, you might have to estimate your earnings and contribute accordingly.

Investment analysis

It’s always a good idea to periodically review your investments, according to Darius McDermott, managing director of FundCalibre.

“What was a perfectly diversified portfolio a year ago may now need some tweaking,” he says. “By failing to address imbalances that may occur naturally after significant price gains or falls, you could be introducing more risk into your portfolio than that with which you’re truly comfortable.”

Reconsider your investment goals. Have your needs changed over the past year? Also think about your attitude to risk and whether this is still the same.

“Then look at the current asset allocation and geographical spread of your portfolio,” adds McDermott. “Does it look about right or do you think you need to adjust it?”

Finally, rebalance your portfolio as necessary – and keep an eye on it throughout the coming year to ensure it continues to meet your requirements.