This will take around 95% of taxpayers out of paying any tax at all on their savings income. Interest and savings earned in banks, building societies, NS&I products, company bonds and credit unions won’t be taxed up to a certain amount. For a basic rate taxpayer, you can earn £1,000 of savings income tax free while higher earners will get a PSA of £500. Additional rate taxpayers who earn above £150,000 are not eligible for the PSA. See YourMoney.com’s Personal Savings Allowance guide.
The amount of income you can earn before you start paying tax rises to £11,000 from £10,600 in the previous tax year. The threshold for the 40p higher rate income tax rises to £43,000 for the 2016/17 tax year, up from £42,385.
Anyone who retires on 6 April onwards will get the new State Pension. So that’s men born on or after 6 April 1951 and women born on or after 6 April 1953. The flat rate State Pension is set at £155.65 a week but not everyone will get the same amount. Some may get less depending on their National Insurance contributions. To get the maximum, you need 35 years of NI contributions and at least 10 qualifying years in order to receive part of this sum. If you have less, you won’t receive any State Pension. If you retired earlier, you’ll receive your pension under the old system. The weekly rate will increase to £119.30, up from £115.95. See YourMoney.com’s New State Pension guide.
Capital Gains Tax (CGT) is the tax you pay when you sell an asset that has gone up in value. It is paid at a basic or higher rate depending on the rate of income tax you pay. Capital Gains Tax on residential property does not apply to your main home, only to additional properties. From the new tax year, the higher rate of CGT will be cut from 28% to 20% and the basic rate from 18% to 10%. See YourMoney.com’s How to reduce you Capital Gains Tax bill for more information.
A new type of ISA launches: the Innovative Finance ISA (IFISA). The IFISA means savers using peer-to-peer platforms will now be able to get tax free returns. While the relatively high rates of interest make it attractive, P2P isn’t protected by the Financial Services Compensation Scheme (FSCS). See YourMoney.com’s Peer to Peer lending: where should I start? guide.
Currently ISAs aren’t flexible so if you put £10,000 into an ISA and withdraw it, you’ll only be able to put in the remaining part of the annual allowance – £5,240 (£15,240 is the ISA allowance for the 2016/17 tax year). From 6 April 2016, ISAs will be flexible which means savers can withdraw and replace their savings within the same tax year without losing the full ISA tax benefits. Stocks and shares ISA providers can also allow this facility if the flexible options are made via a cash trading account. See YourMoney.com’s ISAs: back to basics guide for 2016.
From 6 April, the first £5,000 of dividend income will be tax-free each year as part of the Dividend Allowance (this is on top of the income tax personal allowance). Above this allowance, dividend tax income will be taxed as follows: basic rate 7.5%, higher rate 32.5% and additional rate at 38.1% Rates of income tax payable on dividends will depend upon other taxable income. No tax will be deducted at source and taxpayers must use self-assessment to pay any tax due. This means basic rate taxpayers receiving dividends of £5,001 or more will be required to complete a self-assessment tax return. See YourMoney.com’s Dividend Tax: how will the changes affect you? Guide.
The Lifetime Allowance is the maximum amount of pension savings you can build up without a tax charge and this figure will be cut from £1.25m to £1m on 6 April. Your pension benefits are tested against the lifetime allowance when you start to draw them from the scheme. This may be in one go or at different times depending on how you draw your benefits. The government said the move would impact only 4% of the wealthiest population, but the reduction will also impact hard working individuals saving for retirement. See YourMoney.com’s guide to Pension Lifetime Allowance changes.
From 6 April, the annual pension allowance limit will be gradually reduced for higher earners. The annual allowance is the total amount of money you can pay into your pension pot every year. It is currently set at £40,000 a year for everyone. But the government is introducing a taper system which means the limit will be reduced for anyone whose income exceeds £150,000. The rate of reduction is set at £1 for every £2 of income, bringing the Annual Allowance down to just £10,000 for anyone with an income of £210,000 or more See YourMoney.com’s Annual Pension Allowance guide for more information.
New National Living Wage
You could be in line for a pay rise from 1 April when the new National Living Wage (NLW) comes into effect. The current national minimum wage is £6.50 an hour but the new NLW for people over 25 is £7.20 an hour. The NLW will affect people in some parts of the country more than others but one group that will miss out altogether is the self-employed. See YourMoney.com’s National Minimum Wage guide for more information.
Stamp duty surcharge
New rules which came into force on 1 April mean anyone buying a second home or buy-to-let property will have to pay an additional 3% on top of the current stamp duty rates. The rules are pretty complicated and whether second homeowners or landlords will actually pay the surcharge depends on their individual circumstance. The additional duty is being imposed to “make Britain a country of homeowners” but the fear is landlords will end up covering the extra costs by charging tenants higher rent.