Six Major Tax Changes effective from 6Apr 2017
The arrival of the new tax year on April 6th 2017 brought a whole range of changes
Here we summarise them for you –
Personal Allowance goes up
- The personal allowance – the amount you can earn before paying income tax – will rise with the start of the new tax year from £11,000 to £11,500.
- The threshold for paying higher-rate, 40pc, tax will also rise from £43,000 currently, up to £45,000.
- But you begin to lose your personal allowance once you start earning over £100,000. It is steadily reduced according to your earnings above that threshold, reducing to zero for those earning £123,000 or more.
- The level at which high earners start to pay additional-rate, 45pc tax, remains unchanged, at income over £150,000.
- More than 400,000 people will be taken out of tax entirely as a result of the changes, the Government estimates. The average higher and additional-rate payer will also see real‑term gains, but 1.6 million will have an average loss of £23.
- In addition, the band on which National Insurance is levied is changing. From April the 12pc charge will be deducted once you earn £157 a week, a £2 rise on last year.
- But the upper limit is also increasing from £827 to £866 a week, which means higher earners will pay the 12pc rate on a greater chunk of their salary.
Isa allowances go up
- The amount you can save into an Individual Savings Account (Isa) rises from £15,240 to £20,000 from April – its highest level ever. The limit has grown dramatically over the years, from the £7,000 limit when it was launched in 1999.
- This £20,000 can go entirely into a cash Isa or a stocks and shares Isas, or be split between the two. The interest on savings in a cash Isa is tax-free, while investors in stocks and shares Isas don’t have to declare dividends or capital gains to the taxman. Cash Isas are far more popular, despite interest rates falling to record lows.
Lifetime Isas introduced
- The newest Isa to launch this year is the Lifetime Isa, or “Lisa”, which is intended to be a hybrid of the Help to Buy Isa and a pension. It has a dual purpose – to fund a first-time property purchase and save for retirement.
- From April 6, savers can put £4,000 a year into a Lisa, which will be topped up with a 25pc government “bonus”, making a total of £5,000 saved each year. As with other Isas, you can put money in cash or invest in funds and shares.
- To open the account, you have to be over the age of 18 and under 40. You can continue to contribute – and receive the bonus – until your 50th birthday.
- However, access to the money is more restricted than with regular Isas. You can only take out your cash penalty-free from age 60 or if you are using it for a deposit on your first property. You can also withdraw money if terminal illness or death occurs.
- Cashing in early for any other reason will see a 25pc exit penalty applied. This may seem like the Government merely reclaiming the bonus it paid, but the charge is levied on the entire fund, including any investment growth or interest. Commentators have been highly critical of this “exit charge”.
- The Lisa has been controversial in general, with very few providers saying they will be ready to offer the accounts. Building society Nationwide has already said it will not offer the Isa because of the exit charge.
‘Inheritable’ Isas improve
- The rules by which Isas may effectively be “inherited” after the holder’s death are to be relaxed, possibly as soon as next month.
- Currently, although the tax breaks within an Isa – exemption from capital gains and income taxes – expire on the death of the Isa holder, the surviving spouse can set up a new Isa for an equivalent amount.
- New legislation due to come into force soon will mean that income and growth of the assets inside the Isa will remain exempt from tax during the process of transferring them to the new owner.
- “Subject to certain time limits [expected to be three years], no income tax or capital gains tax will be due on the investments in the Isa during the administration of the deceased saver’s estate,” HMRC said.
- The precise rules have still to be finalised.
Buy-to-let investors lose their tax perk
- From April, buy-to-let investors won’t be able to offset the full cost of their mortgage interest against rent.
- This change was announced in 2015 and will be phased in from the 2017-18 tax year, when only 75pc of interest will be deductible. Currently an investor who receives £18,000 a year in rent and pays £12,000 a year in mortgage interest could deduct the full £12,000. But from April, he could deduct only £9,000, meaning he would pay tax on profits of £9,000 instead of on £6,000, as now.
Inheritance tax break starts applying to family homes
- April sees the first phase of a new allowance that will eventually allow couples to pass on a £1m inheritance tax-free.
- The “main residence nil-rate band”, or the “family home allowance”, is worth £100,000 per person when passing on a main residence in addition to the normal £325,000 per person allowance.
- This means each individual can pass on £425,000 without paying inheritance tax (40pc) so long as it includes the family home and passes directly to children or grandchildren, and not via a discretionary trust.
- The new allowance will increase by £25,000 a year until it reaches £175,000 in April 2020. That will give each person a £500,000 allowance; £1m for a couple. On first death, any unused allowance will pass to the surviving spouse or civil partner.
- Estates worth £2m will see the additional band tapered so they lose £1 for every £2 over the threshold.
Laura Suter – Daily Telegraph
As one of the leading IFA practices in Greater Manchester, Logic Wealth Planning has a team of experienced Financial Advisors specialising in Wealth Management.For friendly & professional help & guidance on Isas, Buy to Let, Inheritance Tax or any other financial matters, we can provide you with help and advice.
Working closely with clients in the Heywood, Rochdale, Bury and surrounding areas across the North West, we believe that however modest your income may be, when it comes to Pensions, Savings and Investments we provide the best financial advice, ensuring that your money is working hard for you and allowing you to enjoy a comfortable lifestyle right through to and including your Retirement years. For your first meeting with us – entirely free and without obligation – please call us now on 0808 1234 321. We look forward to hearing from you.
To arrange this call us now on 0808 1234 321.