Read between the lines: New tax year, new tax planning
Over the next few months we will be bringing you a regular column from Simon Read, a personal finance expert with extensive experience in helping people make the most of their money. Last time we caught up with Simon to get his reaction to the recent Spring Budget. In this column, Simon looks at what changes the upcoming tax year may bring for you.
The new tax year begins on 6 April. There’s usually a lot of noise before that date for people to make the most of their existing year’s tax allowances, or lose them forever. That’s sound advice but making any financial decision in haste can lead to expensive mistakes. That’s why I encourage everyone to do their tax planning at the beginning of the financial year, so there’s plenty of time to take account of what may be a changing situation.
What’s different about the 2017/18 tax year? It’s mainly a question of changing limits – the deadline to act will be exactly the same as it has been in previous years, 5 April. For savers the most notable change is the increase in the tax-free ISA allowance to £20,000, up from £15,240. That’s a massive jump but, to my mind, the biggest advantage is that the new figure is a nice round number and easier to remember!
The 6th April also sees the introduction of the new Lifetime ISA, aimed at first-time homebuyers and people saving for their pension. You need to be under 40 to open one and the big attraction is that the government has promised to top up your savings by 25%. However there are several restrictions and a limit of £4,000 each year. So, while it’s worthwhile for hopeful homebuyers to take advantage or even switch an existing Help to Buy ISA to a Lifetime ISA, anyone looking to save for their retirement is likely to be better off sticking to a company pension scheme, if they have one.
There’s also the Innovative Finance ISA which allows you to shelter your investments through peer-to-peer platforms in a tax-free account. The established platforms are yet to launch their ISA products, so this is something to look out for.
Meanwhile the Personal Savings Allowance introduced in April 2016 continues and means you can earn £1,000 of interest and pay no tax on it if you’re a basic-rate taxpayer, and £500 of interest if you’re a higher-rate taxpayer.
The amount of tax the authorities will demand from you is likely to fall in 2017/18 as the personal allowance is climbing from £11,000 to £11,500. That means an extra £100 for basic rate taxpayers.
The higher rate threshold, the point at which you start paying tax at 40%, is effectively climbing from £43,000 to £45,000, giving anyone earning about that level a £300 boost. That’s unless you live in Scotland where the threshold has been frozen at £43,000.
I haven’t yet mentioned pensions, salary sacrifice, company car tax, capital gains tax, inheritance tax, or several other areas where the tax situation has changed or may require your action. The point is this: you now have 12 months to get your head around your tax situation and act to make the most of it.
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