Tax Year 2007-08 - What you need to be doing now

It's the first working day of the new tax year so now is a good time to sit down and plan ways to minimise the tax you pay in 2007-8. Whether it's a matter of organising your savings in a tax efficient manner, minimising your potential tax liabilities with gifts and a new Will or just making sure the taxman is only taking his due - now's the time to do it!

Get an ISA

If you haven't got one already, set up a cash ISA (individual savings account). You can save £3,000 a year in an ISA without having to pay cash on the interest. From April 2008, this amount goes up to £3,600. You may also invest up to £4,000 in a stocks and shares ISA and not have to pay tax on the profits. Alternatively you can put the whole £7,000 in an equity ISA (£7,200 in 2008-9).

Check your tax code

Your payslip should include your tax code which indicates the tax allowances you are entitled to. The Directgov website's Understanding your tax code page explains what your tax code means. The first £5,225 you earn in 2007-8 is tax-free, with higher allowances for older people. If you have just started your job it is possible you will be put on an emergency tax code so you need to contact your tax office as soon as possible so that you are allocated the correct code.

Reduce your IHT liability

The inheritance tax (IHT) threshold for 2007-8 is £300,000 so if you die and leave an estate worth more than that, your family will be taxed at 40% on the amount over the threshold. Ways to reduce your family's IHT liability include giving away £3,000 tax-free each year and making gifts from income. Making a will and setting up trusts can also reduce your IHT liability and you should seek professional advice on how to do this.

Put your money into your pension

One way to reclaim the income tax you pay is to make contributions into a pension. If you're a basic-rate taxpayer, contributing £78 into a pension will earn you tax relief of £22, making the total contribution £100. If you're a higher-rate taxpayer, then you need put in only £60 in order to get £40 of tax relief.

10 April 2007 © Moneyextra.com

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