New Tax Year, New Rules

April 2017
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As the new tax year begins, now is the ideal time to look at what financial changes might impact on you. Because, by knowing what’s new - both good and bad - you can relax in the knowledge that you’re in the best financial position possible for whatever’s ahead.

Buy-to-let Tax Relief
If you’re a buy-to-let landlord you will face new limits on tax relief on mortgage interest. Over the next three years to 2020, the government is phasing out higher-rate tax relief on mortgage interest, cutting it to a maximum 20%, in a move likely to reduce profits among highly leveraged property owners. This has prompted a surge in the number of landlords holding properties in limited company structures, which will be exempt from these changes. However, moving existing homes from individual to company ownership may trigger a capital gains tax charge.

‘Lifetime ISA’ is Launched
The new Lifetime ISA (individual savings account) has been created to help saving for a house or for retirement — with a 25% top-up from the government on savings. This new ISA is available for those who are aged between 18 and 39 and allows for the saving up to £4,000 a year, which would earn a bonus of £1,000 a year. The money saved can then be used either to buy a first home, worth up to £450,000, or be withdrawn tax-free after the age of 60. If the saver already has a Help to Buy ISA, they will be able to move this into a Lifetime ISA or continue saving separately.

ISA Limits Raised
The limit on the amount you can save into a tax-friendly ISA (the ISA allowance) has risen from £15,240 in 2016-17 to £20,000 in 2017-18. ISA’s allow investors to put their money into a range of savings or investment vehicles without paying tax on the interest, dividends or capital gains. It’s worth noting that your allowance can be used in one kind of ISA alone or split between different types, such as a cash, stocks and shares or Lifetime ISA.

Non-dom Status Scrapped for Long-doms
The rules for people who live in the UK but who are domiciled overseas for tax purposes are undergoing fundamental changes. From April 6, ‘non-doms’ who have lived in the UK for at least 15 of the past 20 years will be considered UK-domiciled for tax purposes, though any offshore trusts they have may remain outside the UK net. Non-dom status for Britons who return to the UK but claim to have a permanent home abroad will also be removed.

Personal Allowance Rise
The personal allowance, or the amount you can earn before paying tax, has risen by £500 to £11,500. Almost everyone earning more than £11,500 will save £100 as a result. The main exception is if you earn more than £100,000 a year, as you won’t receive the full personal allowance.

Also, the higher-rate threshold (the point at which you start paying 40% tax) rises from £43,000 to £45,000. This means that if you earn over £45,000 your tax bill will be cut by £400 on top of the £100 saving from the higher personal allowance.

The only exception is in Scotland, where the higher-rate threshold has been frozen, meaning the 40% rate kicks in on earnings over £43,000.

Inheritance Tax Changes
The ‘residence nil rate band‘ is good news if you want to leave property to your children or grandchildren when you pass away. This is because you will be able to pass on an extra £100,000 before they need to start paying inheritance tax, rising to £175,000 from April 2020. That’s on top of the £325,000 allowance available to everyone.

Crucially, this extra allowance can only be used to pass on property, excluding buy-to-let investments. Spouses and civil partners can combine the new allowances, meaning £1 million could be passed without paying a penny of inheritance tax by 2020.

Rise in State Pension
If you’re receiving the state pension you’ve had an inflation-busting pay rise thanks to the triple-lock that ensures pensions rise by at least 2.5% a year, and don’t fall behind wages or prices.

This means that if you retired under the old system (before April 2016) you will see your basic weekly pension rise from £119.30 to £122.30. On the other hand, if you retired later you will get £159.55 each week (up from £155.65), providing you qualify for the full amount.

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. The Financial Conduct Authority does not regulate tax planning.

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