The new tax year will see a raft of financial changes, from a new flat rate state pension to an increase in the amount people can earn through letting a spare room.
Savers get a new personal savings allowance
Basic rate taxpayers can now earn up to £1,000 a year in savings interest before they have to pay any tax on it, while those on a higher rate are getting a tax-free allowance of £500 a year. Anyone earning up to £17,000 a year can take all of their savings interest tax-free, while anyone earning more than £150,000 a year will have it taxed at 45%.
“In the current environment it would take a significant pot of money before tax needs to be paid,” says Nationwide building society’s head of savings, Tom Riley. “The rules mean the majority of savers will have no tax to pay on any interest earned.”
A basic rate taxpayer with £50,000 in savings earning interest of 1.5% a year would previously have paid £150 tax on their £750 returns, but will now keep the lot; while a higher rate taxpayer will see their tax bill reduced from £300 to £100.
The state pension is overhauled
Anyone reaching state pension age from Wednesday will qualify for the government’s new single flat rate payment, which offers up to £155.65 a week. It replaces the previous system of a basic state pension and an additional state pension with a single payment – but as before, how much you get will depend on how long you’ve been making national insurance contributions.
Figures from the Department for Work and Pensions show that around three-quarters of people who reach pension age in the first 15 years of the new system will be better off, with 80% of those reaching state pension age in 2016 getting an average of £7 more a week.
Reduction of landlords’ wear and tear allowance
Up to now, landlords with buy-to-let properties have been allowed to claim a 10% wear and tear allowance on any furnished home they are letting, even if they have not had to spend any money on replacement items or refurbishment. As of now, they can only reclaim what they have spent, which will mean more paperwork for landlords. The government forecasts it will take £205m in 2017/18 as a result of the change, and has suggested it will encourage property investors to improve conditions for tenants.
Rent-a-room allowance rises to £7,500
The amount that homeowners can earn tax-free from taking in a lodger or holidaymaker rises for the first time since 1997, increasing by £3,250 overnight (and rising by another £1,000 in April 2017). Under the new limit, a landlord or landlady can make up to £144 a week without facing an income tax bill.
The lifetime allowance for pensions falls
The total amount that can be invested in an individual’s pension pot has been cut from £1.25m to £1m. On investments above that amount the government will charge tax at 25%, or at 55% if the additional money is withdrawn as a lump sum. The change will hit public sector workers as well as those in the private sector, and means anyone expecting a final salary pension of more than £43,478 a yearcould breach the limits.
Capital gains tax is cut
The tax paid by investors who sell assets has been reduced. The change, which was announced in March’s budget,means higher rate taxpayers will pay 20% on investment gains rather than the previous 28%, while those who aren’t higher rate taxpayers will pay 10% instead of the previous 18%. The change does not apply to property.
The annual amount that can be made before tax is unchanged at £11,100.
The personal allowance rises to £11,000
The amount anyone can earn before paying tax rises by £4oo a year, while the amount you can earn before paying tax at 40% has increased to £43,000 from £42,386 in 2015/16.
Isas can hold peer-to-peer investments
The annual Isa allowance – £15,240 for 2016/17 – can now be held in a new “innovative finance Isa”. This means that investments in peer-to-peer lenders, like Zopa, Funding Circle and Lending Works, can now earn returns free of tax. In theory, anyway: none of the best-known providers have yet received their regulatory approval, so savers who want to use them will have to wait until they do to open an account. The innovative finance Isa can be used alongside the traditional cash and stocks and shares accounts, with the total allowance spread however a saver chooses.
Workers from outside the EU will have to earn £35,000 to apply for indefinite leave to remain
Unless on a list of shortage professions, skilled workers from outside the EU who have been living here for less than 10 years will need to earn at least £35,000 a year to settle permanently in the UK.
Source: The guardian