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How the April changes will affect the pound in your pocket

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Written by: Paloma Kubiak
20/03/2017
As we head into the 2017/18 tax-year, a number of key changes take place to existing schemes, while some new initiatives come into effect. Here’s a summary of what’s changing.

The start of the new tax year on 6 April is often the time new policies, schemes and initiatives come into effect which could alter the amount of money you can make, save and receive.

Below we outline the key changes you need to be aware of on and around this date, and how you can plan for them now.

Savings

NS&I bond: The new three-year Investment Guaranteed Growth Bond will go on sale on the NS&I website from April, offering a rate of 2.2%. The minimum investment is £100 and the maximum is £3,000. It will be available to savers aged 16+, for 12 months and will be subject to a 90 day interest penalty for early withdrawals.

Lifetime ISA: The much-anticipated Lifetime ISA (LISA) will officially launch on 6 April helping those aged 18-40 buy their first home and save for retirement at the same time. It will allow savers to contribute up to £4,000 each tax year and the government will add a 25% bonus – up to £1,000 a year. Platforms Hargreaves Lansdown, Nutmeg and The Share Centre have confirmed they will offer an investment version of the LISA at launch but no bank or building society will be ready with a cash version from the new tax-year. However, Skipton Building Society has announced it plans to offer a cash Lifetime ISA from June this year.

ISA allowance: The government sets the annual ISA allowance. For the current tax year, which runs from 6 April 2016 to 5 April 2017, the limit is £15,240. The allowance is set to rise for the 2017/18 tax year to £20,000. The Junior ISA (JISA) limit will also increase from 6 April from £4,080 to £4,128.

Household bills

Car tax: The way vehicle tax is calculated for cars is changing from 1 April. It will be based on a vehicle’s carbon dioxide (CO2) emissions and list price for all new vehicles registered on or after this date so that only zero emission cars (electric and hydrogen) will be exempt from Vehicle Excise Duty. For all other cars, first year rates of VED range from £10 to £2,000, according to the car’s CO2 emission.

Prepay energy cap: From 1 April, four million households that prepay for their energy are expected to save around £80 a year as part of a temporary pricing cap, due to expire at the end of 2020.

Minimum wage: The National Living Wage (NLW) is to increase from £7.20 to £7.50 an hour from 1 April for working people aged 25 and over. The National Living Wage is different to the National Minimum Wage, which applies to those under the age of 25. For those aged 21 to 24, wages will rise from £6.95 to £7.05. For 18 to 20-year-olds, there’ll be a 5p increase to £5.60. Under 18s will receive £4.05 per hour from April.

Tax

Personal allowance: The personal allowance – the amount of income you can earn before you start paying tax – will rise from £11,000 to £11,500 from 6 April.

Higher rate tax threshold: The higher rate tax threshold will increase to £45,000 from £43,000. UK citizens currently pay a 20% basic rate of tax on earnings up to £43,000, 40% on £43,001-£150,000 and 45% on income above £150,000.

Corporation tax: This is the amount of tax companies pay on their profits. The rate will drop from 20% to 19% on 1 April 2017.

VAT threshold: The UK’s VAT registration threshold (the rate at which taxable supplies are required to register and account for VAT) will rise from £83,000 to £85,000 on 1 April. The measure, announced at Budget is expected to take 4,000 small businesses from having to register for VAT.

Benefits

Tax-free childcare scheme: The Tax-free Childcare scheme is due to be rolled out in April, helping around two million households. It will be available online and means for every 80p paid in, the government will add 20p, up to a maximum of £10,000 a year. The maximum state contribution per year will be £2,000 per child (or £4,000 for disabled children). Parents must be in work to qualify and earning at least £115 per week, but no more than £100,000 per year. It’s available for children up to the age of 12 and can also be used by self-employed parents.

Salary sacrifice schemes: People who receive benefits in kind from employers through salary sacrifice schemes could see the arrangements culled from April. Salary sacrifice schemes are when employees get a lower salary in return for a benefit or perk such as a mobile phone, company car or car parking space. As a result, the employee pays less income tax and both worker and employer pay less national insurance. These schemes will only benefit from a saving on employee national insurance, with the tax and employer national insurance benefits taken away.

Marriage Allowance: The Marriage Allowance allows an individual who earns less than their personal allowance to transfer a small percentage to their partner (married or civil partner couple). This boosts the receiving partner’s personal allowance, meaning they can earn more before they start to pay tax. From 6 April, the personal allowance will rise to £11,500, meaning 10% (£1,150) can be transferred to a partner, resulting in a £230 tax-break. You can also claim up to four tax-years, meaning eligible married and civil partners can get a £600 tax-break in total.

Pensions and advice

Pension exit penalties: Early exit charges for people accessing their pension pot will be capped at 1% from 31 March. This applies to anyone eligible to access the government’s pension reforms from the age of 55. The regulator, the Financial Conduct Authority, said early exit charges below 1% won’t be able to be increased.

State pension: Under the ‘triple lock guarantee’, the state pension will increase by 2.5% from 6 April. This applies to both the new flat rate state pension and the old basic state pension. Pensioners receiving the flat rate pension will see their weekly income rise from £155.65 to £159.55 per week. Those on the basic state pension will get £122.30, up from £119.30.

Pensions Advice Allowance: People of any age will be able to withdraw up to £1,500 from their pension pots tax-free to pay for financial advice from April. The Pensions Advice Allowance will allow individuals planning their retirement to take up to £500 in three separate tax-years to put towards pension advice, whether they hold a defined contribution (DC) or hybrid DC scheme. But it won’t be available for defined benefit (DB) schemes or final salary type products.

Money Purchase Annual Allowance: The Money Purchase Annual Allowance (MPAA) is a restricted annual allowance for those aged 55+ who have released or drawn down some or all of their tax-free cash sum and who have benefitted from an income from the remaining drawdown pot. This amount will be cut from £10,000 to £4,000 from 6 April.

Property

Main residence nil-rate band: From 6 April, a new family home allowance will be introduced in stages, providing an extra £350,000 worth of inheritance tax-free allowance for married couples or civil partners. This means that by 2020/21 estates worth £1m could be passed on tax-free. Upon death, your estate normally pays tax at 40% on anything above £325,000 (£650,000 for couples) but from April, an additional allowance of £100,000 per person will be in place for individuals where a property has been their principal residence and it’s passed to a direct descendant. This effectively takes the threshold to a total of £850,000 for family beneficiaries.

Mortgage interest: From 6 April, the government will gradually replace the ability to claim mortgage interest payments as an allowable expense with what is effectively a basic rate of tax credit on the total rental income that landlords pay. How it will affect landlords will differ depending on your circumstances, but as a rule of thumb higher and additional rate tax payers will suffer if they currently claim mortgage interest payments against their tax bill. That’s because under the current system they effectively claim interest payments at their marginal rate of tax but this will reduce to a basic tax rate by 2020/21. Landlords who have a low level of equity in their properties will be hit hard, while those without any mortgages won’t be affected at all.

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