6 April was the first day of the new tax year, and subsequently this date brings much change to tax legislation and available tax-saving opportunities. Many of the changes you will already have heard about, through announcements like the Autumn Statement or the Spring Budget. Here we summarise 5 of the most important tax changes that are now in operation.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
Spring Clean your Finances for 2017/2018
April is the best time of year to “spring clean” your finances and forward plan with regards to your future tax position.
New allowances become available, others are taken away, so it is important to understand where you stand.
Here are 5 major tax changes that have now been implemented, from April 2017.
(1) Increase in personal allowance
The personal allowance is now £11,500, up from £11,000. This means the amount you earn before paying any income tax has been increased by £500.
The level that you pay higher rate tax has also increased to £45,000, up from £43,000. This gives a little more room for tax-saving.
It is important to remember though that when you start earning income in excess of £100,000, your personal allowance is dwindled down to zero, if you earn over £123,000 or more.
(2) Increase in the tax-free ISA allowance
There has been an increase in the amount you can save into an Individual Savings Account (ISA). The tax-free allowance is now at it’s highest ever, at £20,000. This is increased from £15,240 last tax year and an increase from £7,000 when the product first launched in 1999.
There is flexibility whether you save into a Cash ISA or a Stocks & Shares ISA, or do a combination.
Cash ISA’s are popular, despite lower returns as many doctors and dentists use it for their “rainy day fund” or as a long-term savings plan to top-up their retirement pot.
Read more: 4 changes to ISAs this year
(3) Launch of the Lifetime ISA
This tax year sees the launch of the Lifetime ISA, also known as LISA. It is aimed to help young people to save for both their first home and their retirement, simultaneously.
From April 2017, savers can invest up to £4,000 per year into their LISA account and they will be rewarded by a 25% bonus from the government.
This account is only available to open if you are between the age of 18 and 40. Withdrawals can only be made for the purchase of your first home, else your money is locked away until after age 60. A few other T&C’s apply.
(4) Buy-to-let tax relief on mortgage interest changes
People with buy to let investment property are now unable to offset in full the cost of their mortgage interest.
Instead, only basic rate tax relief will apply, meaning hundreds of thousands of landlords that currently pay higher-rate tax, will have considerably more tax to pay come the end of this year. .
Example: A landlord receives £18,000 a year in rent and claims £12,000 mortgage interest, leaving a £6,000 profit. With the new rules, they will only be able to deduct £9,000 meaning a profit also of £9,000.
Read more: 5 changes to Buy to Let in 2017
(5) New Main Residence allowance for IHT
This is in addition the usual IHT allowance of £325,000.