Save £16,000 in just three days

For those who do save into Isas, over half (52%) said they have not saved the full tax allowance this year, while just 30% of people plan to save the full tax allowance of £10,200 by the April 5 deadline.

Although many fund managers will need forms to be returned by Tuesday morning, plenty of Isa investment platforms and advisers such as Fidelity Funds Network, Alliance Trust, Bestinvest and Hargreaves Lansdown have online facilities that are open until midnight on Tuesday, while Barclays Stockbrokers customers can open an account until 9.15pm. You will be able to invest with a debit card.

It can really pay to use up the full allowance each year. According to calculations from M&S Money, someone who used their full cash Isa allowance (currently £5,100) since the tax year 1999-2000 would now have £47,231, given average cash Isa interest rates paid each year since then.

Assuming you could generate 2.5% interest from this pot, this would provide a tax-free income of £1,181. If you had saved this in a taxable account, however, a higher-rate taxpayer would earn just £709. Therefore, the Isa savings produce an income benefit of £472.

If you use your full equity Isa allowance every year for 20 years from now, you could have a fund worth nearly £265,000, according to calculations for The Sunday Times by Buck Consultants, the actuary. This assumes the consumer prices index (CPI) measure of inflation averages 2% a year and the underlying fund produces 7% a year before charges.

While equities tend to do better than cash over the longer term, you do not have to commit all your money to the stock market right now if you are wary. Most self-select Isas and investment platforms such as Alliance Trust, Hargreaves Lansdown, Bestinvest and Barclays Stockbrokers will allow you to invest your Isa money in a cash fund for up to six months from the end of the tax year but most pay very little interest, or nothing at all — and interest is taxed.

There is also a good argument for investing next year’s allowance at the start of the next tax year, instead of leaving it until the last minute.

According to figures from Hargreaves Lansdown, if you had invested £7,200 a year in the Invesco Perpetual High Income fund — a popular fund for longer-term investors — at the start of each tax year for the past 10 years, you would now have a pot worth £122,169.

However, if you had left it to the end of the tax year to invest each year, your pot would now be worth £115,487.
Benefit: £472

Sign up for childcare vouchers

From Wednesday, tax relief on childcare vouchers will be restricted to the basic rate for all new applicants. However, higher-rate taxpayers who have signed up before the end of the tax year will be able to keep the higher rate of relief.

While basic-rate taxpayers will continue to be able to claim tax relief against up to £55 a week in childcare costs using the system, new applicants who are higher-rate taxpayers can only claim tax relief against £28 a week. Super-rate taxpayers will only be able to claim against £22 a week.

While the higher-rate relief on £55 a week is worth £1,225 a year to a worker (including saving on national insurance), on £28 a week it is only worth £623. Over a year, this works out as a loss of £602 in benefit, or twice that for a couple where both are working (£1,204).

If you are a higher-rate taxpayer with childcare costs, there is still time to sign up by Tuesday. You must be an employee because the selfemployed and freelancers may not apply.

Even if you are a basic-rate taxpayer, it is worth signing up if you are near the higher-rate tax threshold and could receive a pay rise.

The government is reducing the higher-rate threshold from £43,875 to £42,475 in April, sucking about 750,000 basic-rate taxpayers into the higher-rate bracket, according to the Institute for Fiscal Studies.

To benefit, you need to sign a salary sacrifice agreement with your employer, which then deducts £55 a week from your gross salary and pays it into a childcare voucher account, or provides you with paper vouchers.

You then use these to pay the child carer. Most employers will be able to sort this out quickly and many childcare voucher providers, such as Computershare Voucher Services and Sodexo Pass, will be open until late on Tuesday to receive applications.
Benefit: £1,204

Top up your pension

The annual allowance for pension contributions falls from 100% of earnings, subject to a maximum £255,000, to just £50,000 on Wednesday.

From the start of the new tax year, if you earn less than £50,000 you can only attract tax relief against your own contributions up to the amount of tax you have paid. However, your employer may top this up to the £50,000 annual allowance without penalty.

AJ Bell, a provider of selfinvested personal pensions (Sipps), has reported a 30% rise in the number of people making contributions of more than £50,000 in the past month, compared with the same period last year.

Anupam Patra and wife Nilanjana max out their Isa each year (Adrian Sherratt)

Billy Mackay at AJ Bell said: “We have seen a significant surge in larger contributions in the past few weeks.”

Someone who earns £75,000 could make a gross contribution of £75,000 this tax year, which includes tax relief of 40%, or £30,000. However, if they waited until the new tax year, they could pay in only £50,000 gross including tax relief of £20,000 — so they get an extra £10,000 by acting fast.

Many high earners have been restricted by “anti-forestalling” measures, introduced by the previous government, to making an annual contribution of just £20,000 for the past two tax years.

That is because those earning above £150,000 a year — or £130,000 if your employer makes a contribution on your behalf — are prevented from investing more than £20,000 for this tax year and the last one.

From Wednesday, the anti-forestalling rules will fall away, enabling all high earners to invest the maximum £50,000 a year. Furthermore, it will become possible to roll over any unused pension contribution allowance for up to three years, starting with the tax year 2009-10. This means you could make up the additional £30,000 for each of the previous two tax years, plus invest the full £50,000 for the 2010-11 tax year — a total of £110,000. Anyone who has not made a contribution at all in the years 2009-10 and 2010-11 can invest a total of £150,000 in 2011-12.

However, Steve Latto at Alliance Trust Savings warned that if you make a very large pension contribution using salary sacrifice, it could reduce your earnings to a lower tax bracket. This would cut the tax relief payable against the contribution.

“For some, it may be more advantageous to make a contribution before April 5,” he said.

Most Sipp providers will enable clients to make last-minute contributions. Mackay said it is possible to set up a Sipp with AJ Bell in minutes.
Benefit: £10,000

Take out a pension for family members

Don’t forget that even non-taxpayers can make contributions of up to £3,600 gross a year, so you can make contributions on behalf of non-working spouses and children. Though pensions cannot be accessed before the age of 55, the investment has a long time to roll up.

If you contributed the maximum £3,600 (at a cost of £2,880 to you as the government makes up the rest with 20% tax relief, saving you £720) each year for the first 18 years of a child’s life then left the resulting fund to roll up until their 65th birthday, you could produce a fund worth £1.8m, according to calculations by Hargreaves Lansdown. This assumes growth of 6% a year.
Benefit: £720

Maximise your pension income

From Wednesday, the requirement to buy an annuity with personal pensions by the age of 75 will be abolished. You will still have to “vest” your pension (take benefits) by that age, but will be allowed to keep the fund in an income drawdown plan.

The maximum you can draw from income drawdown schemes is falling, from 120% of the annuity income you could buy, to 100%. This may spell a sharp fall in incomes for those drawing the maximum.

AJ Bell said a male aged 60 going into drawdown before the new tax year with a fund worth £300,000 (after withdrawal of any taxfree cash) will be allowed to draw a maximum income of £21,600.

Anyone going into drawdown from April 6, however, will have a maximum income of £17,700 — an 18% reduction.

Mackay said the wording of the rules allows investors to lock themselves into the 120% rate for five years by moving part of their pension into drawdown before April 6.

If at any point in the next five years they move the remainder into drawdown, the maximum pension will still be worked out using the 120% rate.

Mackay said anyone already in drawdown with a review of maximum income due between April 6 and June 5, can have their income calculated using the old higher rates.
Benefit: £3,900
Total Benefit: £16,296

Childcare vouchers can be a welcome tax break (Dwayne Senior)

Helping hand at nursery

Timothy and Carolyn Hawley, both 45, from London, are higher-rate taxpayers and registered for childcare vouchers through Computershare just before the higher-rate benefit is lost on April 6. They use the vouchers to help with nursery fees for their two-year-old son, Luke. Timothy, a sales and marketing consultant, said: “My wife has recently set up her own human resources consultancy business and has had to transfer her childcare vouchers. Thankfully, she did it just in time. The average cost of a nursery in London is £320 a week, which I worked out is equivalent to paying a £200,000 mortgage, so these vouchers are a very welcome tax break.”

Feathering the nest

Anupam Patra, 37, an IT project manager, and wife Nilanjana, 36, are making the most of their allowances. The couple, who live in Bristol with sons Abheek, 9, and Ankit, 4, max out their Isa each year and have raised their pension contributions. They also save with Quidco, the cashback site.