Family Finance in the New Tax Year
As we enter a new tax year, it’s the perfect time for families across the UK to reassess their financial planning strategies to maximise savings, benefit from available allowances, and ensure efficient tax management. Understanding the changes in tax rules and how they affect personal finance is vital.
This article outlines important areas of consideration for family finance management – none of this information should be taken as financial advice, tax advice, or pension advice. For professional and regulated advice tailored to your specific circumstances, consult an independent financial advisor or one of our family finance support partners.
You can also read more information in the family finance section of our website.
Tax Code Changes and Implications
Each tax year, which begins on April 6th in the UK, often brings adjustments to tax codes and allowances. It’s essential for families to review their tax codes on payslips to ensure they are correct and accurately reflect their personal circumstances. Any errors in tax codes can lead to underpayment or overpayment of tax, which could affect family cash flow.
For the new tax year, make sure to verify that your tax code has been updated if you have experienced changes such as marriage, parenthood, or a change in income. The basic personal allowance – the amount you can earn before paying income tax – generally updates each April, so be aware of this figure to understand your taxable income.
Utilising Tax-Free Allowances and Benefits
ISA Allowances
Individual Savings Accounts (ISAs) remain a cornerstone for family savings due to their tax-free status on interest, dividends, and capital gains. The allowance for an ISA remains £20,000 per adult. There’s also a Junior ISA for children, which has a lower limit but can be a great way to save for your child’s future.
Child Benefit
Most families are entitled to child benefit despite your earnings, although it’s subject to a charge if one parent in a household earns over £60,000 a year. If you or your partner are approaching this threshold due to a pay rise, it might be worth exploring options such as additional pension contributions to reduce your taxable income and retain full eligibility for Child Benefit.
Marriage Allowance
One partner can transfer up to £1,260 of their personal allowance to their higher-earning partner, reducing their tax by up to £252 a year. This is particularly beneficial if one spouse or civil partner does not earn enough to use their full tax-free allowance. You can read more information on the official UK Government webpage.
Planning for Retirement
Pension contributions continue to be one of the most tax-efficient ways to save. Contributions into a personal or workplace pension are topped up by the government in the form of tax relief. For higher-rate taxpayers, additional relief can be claimed through your tax return.
As families plan their finances, increasing pension contributions can be a beneficial way to reduce taxable income and save for retirement.
Savings and Investments
Given the often volatile nature of markets and ongoing economic uncertainties, diversifying investments and regularly reviewing your savings strategy is advisable. Consider speaking with a financial advisor to ensure your investment choices align with your risk tolerance and long-term financial goals.
Education and Children’s Savings
Planning for your children’s education should ideally be a part of your family’s financial strategy. With rising university fees and living costs, starting a savings plan early can significantly relieve the economic pressure when your children reach higher education. Options like Junior ISAs, children’s savings accounts, or even specific education savings plans can be beneficial.
Budgeting and Managing Debt
As costs of living fluctuate, maintaining a robust budget becomes essential. This year, focus on revisiting and possibly restructuring your budget to accommodate changes in income and expenses. Prioritise paying off high-interest debts to reduce overall financial strain. Tools like budgeting apps or spreadsheets can greatly assist in managing your finances more efficiently.
Preparing for Financial Emergencies
An emergency fund is critical, especially in uncertain economic times. Aim to have at least three to six months’ worth of living expenses saved to cover unexpected situations like medical emergencies or job loss.
New Tax Year, New Family Finance
Navigating family finance in a new tax year can seem daunting, but with careful planning and proactive management, you can maximise your financial well-being.
Stay informed about tax changes, make full use of available allowances, and consider consulting with a financial advisor to tailor a strategy that best suits your family’s needs. Your family can ensure a more secure and financially stable future by completing the annual review and thinking forward.
