Archive: MoneySavingExpert's Money Tips Email

HAPPY NEW TAX YEAR!

Urgent Child Benefit check, find your new take-home pay, £1,000 free cash for first-time buyers & more
10 resolutions to get financially fit in 2024/25

Forget 1 January, the New Year that matters is 6 April... the start of the New Tax Year, which has a material impact on the money in your pocket. It's when new tax codes start, ISA allowances reset, and this year there are also national insurance cuts and a Child Benefit shake-up. So we've 10 checks to ensure you're financially fit for the (tax) year ahead...

1. EMPLOYED? National insurance (NI) has been CUT for millions - check your take-home pay and tax code NOW. NI is a form of tax that only applies to earned income (as opposed to pension or investment income). On 6 April, the rate for income between £12,570 and £50,270 dropped from 10% to 8% - a tax cut worth roughly £250/yr for someone on £25,000, £450/yr on £35,000 and £750/yr for all those who earn over £50,270.

BUT fiscal drag (frozen tax thresholds) eats some back. NI and income tax thresholds have been frozen since 2021 (though there have been slight changes in Scotland), while earnings have risen. The result... more of your income goes to tax. This way of increasing tax revenue is called 'fiscal drag'. So check our updated Income Tax and National Insurance Calculator to see whether you're up or down for 2024/25.

Equally important is our Free Tax Code Calculator - use it to check if your 2024/25 tax code is correct. Your tax code is a series of letters and numbers (for example, 1257L) which tells your employer or pension provider what tax to deduct. However, millions of codes are wrong each year, so it's crucial to check yours - it's your responsibility, not your employer's or HMRC's.

2. SELF-EMPLOYED / FREELANCE? NI has been slashed for many of you too, but still aim to put 30% of earnings aside for tax. On 6 April, the main class 4 NI rate (payable on yearly profit between £12,570 and £50,270) was cut from 9% to 6%, plus class 2 contributions have been scrapped (unless you earn under £6,725 in which case they're £3.45/week and they're voluntary). See self-employed NI changes for full info.

Yet fiscal drag also applies here too, so it's vital to get tax right at the start of the year. Martin's rule of thumb is for every £100 you're paid, put about £30 aside in a separate account you never touch, for tax and NI (hopefully this is too high, in which case you'll have saved a touch). 

If you don't have money set aside to pay tax, it can be a nightmare when the bill comes in. Martin wrote his warning to freelancers and the self-employed blog over a decade ago, but it's still just as relevant today.

4. SAVER? You've a new cash ISA allowance... but not everyone needs the tax benefits of an ISA. A cash ISA is just a savings account where the interest is always tax-free. You've now got a refreshed £20,000 allowance for the 2024/25 tax year, and there are other changes to ISAs to make 'em more flexible. Full details in Top cash ISAs, but in brief:

- You can now pay into multiple ISAs of the same type in the same tax year.
- Partial transfers of current-year ISA funds are now allowed.
- The minimum age you can open a cash ISA is now 18 (up from 16).

But not everyone needs a cash ISA. Since the introduction of the personal savings allowance (PSA), 20% basic-rate taxpayers can earn £1,000/yr in interest tax-free from all savings, and higher 40% taxpayers can earn £500/yr (top 45% taxpayers don't get a PSA so pay tax on all interest outside an ISA).

Until recently, few could save enough to get close to that, but at current rates, about £20,000 in an easy-access account or £19,000 in a 1yr fix is enough to see a basic-rate taxpayer exceed their PSA. Plus, some cash ISAs currently out-pay standard savings. Even at lower rates, cash ISAs will likely win if:

- You already pay tax on savings interest.
- You're near the limit and likely to pay tax on savings interest soon.
- You want to lock cash away but think there's a chance you'll need access (fixed cash ISAs let you withdraw money, for a penalty).

Below are today's top rates compared to the equivalent top normal savings (links go to our guides, as rates often change)...

5. INVESTOR? You've a new stocks & shares ISA allowance. The same £20,000 ISA allowance for this tax year applies across cash AND stocks & shares, so you can save in one, both or neither (or use £4,000 of it for a Lifetime ISA). Plus from 6 April, the tax-free dividend allowance and capital gains tax allowance have been halved, making stocks & shares ISAs more attractive for investors. Full info in Stocks & shares ISAs.

6. FIRST-TIME BUYER (OR WANT TO BE ONE DAY) AGED 18 TO 39? Get a FREE £1,000. A Lifetime ISA (LISA) gives first-time buyers a 25% bonus on what they save. You've a new £4,000 allowance for the 2024/25 tax year, so open a LISA and max it out and the state adds £1,000.

If nothing else, most aged 18+ should put £1 in a LISA (if you haven't already) to start the clock, as it needs to be open a year before you can use the bonus to buy a home. We covered LISAs in more depth in last week's email so, if you don't mind, we'll point you there for more info.

7. MARRIED / CIVIL-PARTNERED and not claiming marriage tax allowance? It's worth £252 this tax year. If one of you is a non-taxpayer and the other a basic 20% taxpayer, you can transfer tax-free allowances between you, so you pay less tax as a couple. It's worth up to £252 this tax year, but backdate it the full four years allowed and it can be worth a further £1,006. And once you sign up, you get it every year. Around 2.1 million eligible couples miss out - check you're not one of them in Marriage tax allowance.

8. ON A LOW INCOME? Check if you now qualify for means-tested benefits. Most benefits (including Universal Credit) went up by about 6.7% this April. As they've gone up by more than most people's wages, some low-income households will now likely qualify for help for the first time, even if they didn't last year. Check now if YOU could with our 10-minute benefit checker.

9. PENSIONER IN POOR HEALTH? Some non-means-tested benefits have also been boosted. Our 10-min benefit calc will give you a rough idea if you qualify for any of them, but a biggie is Attendance Allowance, which is financial support now worth up to £5,645/yr if you're aged 66+ and require help with certain daily living tasks. Around one million pensioners are missing out, often due to misconceptions around what it is and who can get it. So don't just assume that you - or someone you know - won't qualify. Take the time to check. See Attendance Allowance.

10. AGED 40 TO 73 AND NOT DUE A FULL STATE PENSION? Boost it by turning £800 into £5,500+ (free for some). To get the full state pension, you'll need 35ish (only 'ish', as it can be more for some) complete NI years - most get these through working or claiming benefits.

If you've gaps in your NI record, check if you can fill them for free. If not, you can buy missing years from 2006 to 2016, which can be incredibly lucrative, though you'll need to do it before 5 April 2025. Don't leave it till then though, as it's not quick. We've full help on who should do this in boost NI years.