Warning: UK personal tax rates are changing, and you need to know how

Today is the last day of the UK tax year. Hurrah!

Fair enough, the end of the tax year can’t really compete with this afternoon’s Grand National, the 172-year old steeplechase that will be watched by 600million viewers worldwide. But paying closer attention to your taxes will almost certainly leave you richer than betting on Shed a Tear for Gordon at 100-1.

I admit I took far too long to get interested in tax, in as much as I am ‘interested’ now, which isn’t very. But I belatedly realised that it’s pointless spending hours on my investing, let alone working hard for a wage, only to give away lots of my earnings through paying needlessly large amounts of tax.

Some of the tax-related moves I’ve made since that lightbulb moment include:

• Being sure to use my full ISA allowance each year (I wish I could go back to the early years of ISAs and PEPS when I didn’t do this!)
• Favouring dividend income over cash savings, except for my emergency funds (dividends are taxed more favourably than cash in the UK)
• Buying AIM shares, which attracted a lower-rate of tax if held for two years
• Trying to use at least some of my Capital Gains Allowance each year, to ‘defuse’ long-term tax bills
• Investing in VCTs, which give an income tax rebate and tax free dividends
• Putting my freelance earnings through a properly organised Limited Company

Tax changes in 2008/9

If you’re looking to begin planning your finances more tax efficiently, you’ve picked an interesting year to start; there are some reasonably big changes to look out for in this new tax year.

To mark this, I’ll be looking at UK tax changes over five articles.

My ‘Five big boring tax changes that will make you richer or poorer in 2008’ series will start with a summary of the newly revised ISA rules. If you don’t think ISAs are for you, make sure you read this article since nearly every saver in the UK should use ISAs.

In full, the exciting schedule of posts will cover the following major changes to the UK tax regime:

1. Annual ISA allowance rising to £7,200 a year
2. Scrapping of the 10% starting rate of income tax
3. Reduction of basic income tax rate from 22% to 20%
4. Capital Gains Tax to be charged at a flat 18%
5. AIM shares’ tax advantage being effectively abolished

Each post will link to at least two off-site resources, so you can read up further if you want to.

Those are the main changes coming in with this new tax year that I think UK-based Monevator readers should look out for, but there are lots of fiddly adjustments, too, such as the usual annual raising of the higher-rate tax band to compensate for inflation and so on. The Government’s own tax information page looks pretty comprehensive if you want to research further.

This series is a bit of an experiment for Monevator, so it’ll be interesting to see how many of you splendid folk tune in every day to read the posts. To help you remember, please consider subscribing via RSS or email.