The start of the new financial year gives another opportunity to put finances in order, urges Kay Hill.
What have the Romans ever done for us? Well, among many other things, we can thank them for the fact that the financial year begins not on the logical 1 January, but on 6 April. It’s to do with the UK sticking to the Julian calendar introduced by Julius Caesar, which celebrated New Year on March 25, long after Europe changed to the Gregorian calendar. When this was rectified in 1751, by moving our dates forward by 11 days and shifting New Year to 1 January, the taxation year was moved forward by 11 days as well, to 5 April, and then to 6 April a few years later to account for leap years.
It has frequently been suggested that a move to a 1 April start would make book-keeping easier, but for now, we are stuck with this historical oddity – although it does at least give a second chance for financial new year’s resolutions! So here are our tips for starting the new fiscal year the way you mean to carry on – helping you to get your finances in great shape for buying a home.
Work smart
Starting in April, the Government increases the National Living Wage, for employees over 21, by 6.7% from £11.44 to £12.21 an hour, and the National Minimum Wage for 18 to 20-year-olds by 16.3%, from £8.60 to £10 an hour – so check your first pay cheque of the financial year carefully to make sure this has been actioned.
It’s also a good time to check your tax code. The code 1257L is used for most people who have a single job, showing you’re entitled to the standard tax-free Personal Allowance of £12,570. If you receive benefits such as medical insurance or a company car, this will be reduced. Watch out if your tax code ends in BR, as this means all your income from that job is being taxed at 25%, with no personal allowance. This could be correct if you have more than one employment, but could also be an error that needs raising with your employer or with HMRC.
Expert Comment
Many of us feel the pressure to make ambitious resolutions which inevitably fall by the wayside, but making smarter financial decisions should be a lifelong commitment that becomes a habit – and it doesn’t need to wait until a new year. It’s the everyday, little choices with your money that will be the cornerstone to lifelong financial wellbeing. At Moneyfarm, we believe that the key to achieving your financial goals is by spending time reviewing your current situation and then taking small but achievable actions. By consistently making manageable financial choices, over time, you can build a solid foundation for a prosperous future. With a good plan in place, you’ll have more confidence and security for the years ahead. Financial planning is key to reaching your financial goals, but this does not mean you cannot spend money on yourself and loved ones along the way. Life is meant to be lived, so while you set new targets and commit to smart financial decisions, make sure to leave room for things that bring you joy. Rewarding yourself with occasional treats or experiences can make the process more enjoyable. Life is all about balance and this does not change when it comes to your finances!
Chris Rudden, Head of Investment Consultants, digital wealth manager Moneyfarm
Savvy saving
Every adult has an annual ISA allowance which restarts on 6 April. The allowance is £20,000, and you do not have to pay income tax or capital gains tax on any interest or growth that takes place in an ISA, so it’s a great way to grow your savings. Each April you can either start paying an additional £20,000 into existing ISAs, or open new ones. Look first at the LISA (Lifetime ISA), as there is a 25% Government bonus in addition to the tax-free benefits, although each person can only save £4,000 of their £20,000 annual ISA allowance into a LISA and you must be a first time buyer aged 18 to 39 to open it. The current best buy is Moneybox, paying 5%.
Once you have added £4,000 to a LISA, try to make the most of the rest of your allowance by squirrelling money away in a cash ISA. If you are careful to choose an instant access, flexible ISA, where you can repay money you take out within the same tax year, you can use your ISA as you would any other instant savings account, moving money into it after you have been paid, and taking it out again as required. Best buys include Trading212, paying 5.03%, and Monument, paying 4.76%. If you are unlikely to need to access the funds, you can protect against interest rates falling with a one-year fixed rate cash ISA, such as Close Brothers offering 4.45%.
Stocks & Shares ISAs are available, but best suited to longer term savings, while first time buyers should not be tempted by the Innovative Finance ISA, designed so experienced, high net worth investors can become involved with peer-to-peer lending. The other tax-free saving option is Premium Bonds, but as the prize fund is dropping to 3.8% in April, with only a one in 22,000 chance each month, you may consider that a guaranteed return of upwards of 4.5% from an ordinary savings account is a better bet, even if you are taxed on it.
Use the opportunity of the new financial year to check every savings vehicle you use, to see if you can find a better deal elsewhere. However, if you want to move an existing ISA make sure to use the official transfer mechanism (which is very straightforward) as if you just withdraw it, the money loses its tax-free status.
Spending review
Take a few minutes to go through your bank accounts and see where the money is going. If you are paying for a gym membership you don’t use, magazines you don’t read or streaming services that you never get around to watching, now is the time to cull them. Could you exchange Spotify for the radio, Kindle Unlimited for the library (most also offer free digital books you can access remotely) or Hello Fresh for shopping at the market?
April is when many utility bills increase, so take a moment to look at whether changing supplier for gas and electricity, broadband, mobile phone or TV subscriptions could lead to savings. Council tax will also go up, so be sure to claim any discounts you are entitled to – there’s a 25% discount if you live alone, or the other residents are all disregarded for council tax such as full-time students, student nurses, some apprentices and people with severe learning disabilities.
Plan like a pro
Did you know that you get a better price on your car insurance if you shop around for a quote 20 to 27 days ahead of your renewal? Leave it until the last minute and insurance companies will assume you are disorganised, therefore more likely to have an accident! Planning ahead also gives you time to make the best choices, so put all your insurance renewals – car insurance, contents insurance, pet insurance etc – into your phone, with a reminder a month ahead to give you plenty of time to shop around.
April is also a good time to check if you need to do a tax return. In general, if you are employed and paying tax through PAYE, you only need to talk to HMRC if you have earned over £1,000 from self-employment (which includes profit from selling things you make, or extra cash jobs); over £1,000 from property (such as charging people to park on your driveway); share dividends over £500; or interest from savings over £1,000 if you are a basic rate taxpayer and over £500 if you pay higher rate tax. You also need to declare capital gains over £3,000 – such as profit from selling shares. You can submit your tax return in April; you won’t have to pay anything until the end of the following January, and you have the satisfaction of being better organised for 2025/26.
Expert Comment
The ultra-low interest rates seen in the wake of the financial crisis deprived cash savers of returns, but it meant they didn’t really have to worry about tax, especially after the Personal Savings Allowance was introduced in 2016. This allows basic rate taxpayers to receive £1,000 of interest each year tax-free and higher rate taxpayers get a £500 allowance. Now interest rates have risen, however, tax on cash interest rates has become a serious problem for savers. A Freedom of Information request from AJ Bell revealed that almost 2.1 million people are expected to pay tax on their savings this year, up from around 650,000 just three years ago. As well as higher interest rates, the taxman’s haul is being boosted by the freezing of tax bands, and over the next five years that’s expected to mean a further three million will be pushed into the higher rate tax band, where their Personal Savings Allowance gets halved to £500, and they move from paying 20% to 40% on the excess. But by using available tax shelters and a bit of financial planning, savers can protect themselves from tax and keep more of their interest in their own hands.
Laith Khalaf, Head of Investment Analysis, AJ Bell
Kay Hill
Kay has been a professional journalist since her teens, working for local and regional newspapers, magazines and now websites as well. Kay work across a number of fields, including architecture, design, personal finance and the housing market – Kay enjoys making the complicated things in life a little easier to understand.As a consultant for PR company Building Relations, Kay has written for developers including Barratt London, Dandara, MTVH and Annington.
Kay enjoys the beauty of language, the structure of grammar and the process of condensing thousands of words of research and interviews into 1,200 carefully chosen words that will leave the reader a little more informed than when they started.
