How to make your money work harder before the new tax year
As the UK tax year draws to a close on 5 April, it presents a crucial deadline for British consumers to review their finances. This period is not just about filing a tax return; it’s a final opportunity to use valuable allowances and make strategic decisions that can protect your money from unnecessary tax and boost its growth potential. Taking action now can have a tangible impact on your financial wellbeing for the year ahead.
Many UK tax allowances are “use it or lose it”, meaning they reset on 6 April. Failing to act means these benefits disappear forever. This guidance explains practical steps you can take, from checking your tax code to maximising your savings and pension, to ensure your money is working as efficiently as possible under current UK rules.
Key financial checks and actions before April
Review your tax code and personal savings allowance
Your tax code, found on your payslip or P60, dictates how much income tax you pay. An incorrect code, perhaps due to a change in jobs or benefits, means you could be overpaying or underpaying tax. You can check your code against your circumstances using the HMRC online service or by calling them. Rectifying an error now can result in a rebate or prevent a surprise bill later.
Equally important is understanding your Personal Savings Allowance (PSA). This is the amount of interest you can earn from savings in a standard taxable account before you owe tax on it. For the 2024/25 tax year, basic-rate taxpayers can earn £1,000 in savings interest tax-free, while higher-rate taxpayers have a £500 allowance. Additional-rate taxpayers get no allowance. If your savings interest is nearing or exceeding this limit, consider moving money into a Cash ISA before the deadline to shield future interest from tax.
Maximise your ISA allowance
The ISA allowance is one of the most valuable tax breaks available to UK savers and investors. For the current tax year, you can put up to £20,000 into ISAs. This can be in a Cash ISA, a Stocks and Shares ISA, an Innovative Finance ISA, or a combination of these types. Any growth or interest within an ISA is completely free from UK income tax and capital gains tax.
The key point is that this £20,000 allowance does not roll over. If you don’t use it by 5 April, it’s gone. Even if you can only contribute a small amount, doing so secures that money’s tax-free status forever. It’s a simple step that makes your future returns more efficient.
Boost your pension contributions
Pensions are another highly tax-efficient way to make your money work harder. Contributions you make receive tax relief at your highest marginal rate. For a basic-rate taxpayer, a £100 pension contribution effectively costs you only £80, as the government adds £20 in tax relief. Higher and additional-rate taxpayers can claim further relief via their Self Assessment tax return.
You have an annual allowance for pension contributions, which is currently £60,000 for most people, or 100% of your earnings, whichever is lower. If you haven’t used your full allowance from the last three tax years, you may be able to carry it forward and make a larger contribution now, but this has specific rules and often requires professional advice. Increasing your pension payment before the year-end is a powerful way to reduce your taxable income and build your retirement pot.
Consider capital gains and dividend allowances
If you have investments outside of an ISA or pension, you benefit from tax-free allowances for capital gains and dividends, but these have been significantly reduced. The Capital Gains Tax (CGT) annual exempt amount is just £3,000 for the 2024/25 tax year. The tax-free Dividend Allowance is £500.
Before 5 April, it’s worth reviewing your portfolio. You could sell some assets to realise gains up to the £3,000 CGT limit, effectively “crystallising” this tax-free benefit. You might also consider transferring investments into a Stocks and Shares ISA through a process called ‘Bed and ISA’ to shield them from future tax. Remember, transferring assets into an ISA uses your annual ISA allowance.
Plan for the year ahead
While using current allowances is urgent, this period is also ideal for planning. Set a budget for the new tax year, including how much you aim to save or invest monthly. Review your direct debits and subscriptions for services you no longer use. Check the interest rates on your savings accounts; with rates changing, your money might be languishing in a poor-paying account. Shopping around for a better rate can make a significant difference over time.
Finally, if you have multiple pension pots from old jobs, the end of the tax year is a good prompt to consolidate them. This can make them easier to manage and potentially reduce fees, but you must check for any valuable benefits or guarantees you might lose by transferring.
Taking these steps requires a little time and organisation, but the financial benefits can be substantial. By acting before the 5 April deadline, you ensure you’re not missing out on valuable allowances and that your money is positioned as tax-efficiently as possible under UK rules. It’s a proactive habit that can make a real difference to your long-term financial health.
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