Three easy new tax year resolutions

As April gets underway, it may be time for some new tax year resolutions. Your finances may need a little maintenance, or it could be time to tick off the task that keeps crawling its way to the bottom of your to-do list.

Even if the budget is looking tight, there are simple steps you can take to tidy up your finances and make what you can contribute count for a little extra.

1. Take a pension roll call

If you’ve switched jobs but haven’t gone through the process of combining old workplace pensions, you may have more in your retirement fund than you think.

There are currently 20 million pension pots under £10,000 that don’t have active contributions, totalling £30 billion. Especially when people work at a job for a short amount of time, they may not think about their pension after they leave.

These pots can be combined so you can get a more accurate picture of how your retirement savings plan is progressing. Combining pots also helps you to avoid paperwork and hassle of monitoring multiple pensions.

2. Get the kids started

Telling your child that you’ve added to their Junior ISA might not illicit the same reaction as you giving them a gift or hard cash. But once your child is ready to fly the nest, having something to get them started can be a handy safety cushion.

A Junior ISA can take contributions of up to £9,000 per year, which can come from parents, grandparents, family friends, or anyone else who is feeling generous.

While this is your child’s money, they will not be able to manage the ISA until they are 16 and will be unable to withdraw money until they turn 18. After this age, it is completely within their control.

If you put money in a Junior ISA for your child, you will also be faced with decision of a cash or investment option. AJ Bell only offers the latter.

While HMRC data shows that 43% of Junior ISAs are held in cash, the accounts can provide a great environment for investing.

If a parent contributed the maximum £9,000 to their child’s Junior ISA each year from birth and continued until they turned 18, at 5% annual growth they would build up an ISA worth £266,000.

3. Avoid unnecessary tax traps

A simple bit of planning can help you shelter investment success from the taxman.

You will start to pay tax on a personal savings account once you hit £1,000 in interest if you are in the basic-rate tax bracket. This allowance shrinks as you move up tax brackets, and remember, any income you make in the form of interest will count as income that determines your tax bracket.

One of the simplest ways to avoid this tax is by investing in an ISA instead of personal savings account. You can add up to £20,000 to your ISAs each year, and the capital gains or income from investments inside these accounts are exempt from tax.