Now the new tax year has started, here’s a summary of some of the bigger things that have been changed regarding savings, tax and pensions.
Will You Be Up Or Down Following The 2017/18 Tax Year Changes?
Five New Tax Year Changes To Consider
1. Money Purchase Annual Allowance
Philip Hammond confirmed in his March 2017 Budget that the Government said it would press ahead with a planned reduction in the money purchase annual allowance from £10,000 to £4,000.
The move applies retrospectively, affecting all individuals who have accessed their pension flexibly, regardless of when they accessed it. The pensions industry has widely opposed this reduction, which it says goes against the principle of pension freedoms. The argument in favour of this cut was to combat additional tax relief, but there doesn’t appear to be any widespread evidence of this.
It’s highly relevant if you’ve accessed your pension and you’re intending to make a pension contribution in this tax year.
2. New Tax Thresholds
It’s not all doom and gloom. In a positive move, you can now save more into ISAs. The limit on contributions has increased from £15,240 to £20,000.
At the same time, the personal allowance will rise from £11,000 to £11,500, while the threshold for higher rate taxpayers will go from £43,000 to £45,000. In Scotland, the threshold for earned income will be frozen at £43,000.
Here’s a full summary of the tax and tax credit rates and thresholds for this tax year.
3. Buy-To-Let Tax Relief
First announced in July 2015, mortgage interest tax relief for landlords is being cut by the Government to 20 per cent between this tax year and 2020.
As this rule change doesn’t apply to limited companies, it’s led to a significant increase in landlords buying property to rent out through special purpose vehicles. According to research from Mortgages for Business, 77 per cent of all buy-to-let purchase applications were made via a corporate vehicle in the last three months of the last tax year.
4. Lifetime ISA
The Lifetime ISA will allow UK residents aged between 18 and 40 to pay in up to £4,000 each tax year. Contributions will qualify for a 25 per cent Government bonus.
Savers will be able to buy their first home up to the value of £450,000. Alternatively, the cash can be accessed from age 60, or earlier in the event of terminal illness. Withdrawals outside of these rules incur a 25 per cent exit charge, including on any growth, except in the first year of the product, the 2017/18 tax year.
According to Money Marketing, two thirds of adults were not aware of the Lifetime ISA. One senior source in the pensions industry claims the Treasury is so desperate for it to succeed that officials are calling providers regularly to check they will be offering it from this tax year.
5. Salary Sacrifice
Chairman of Helm Godfrey, Danby Bloch, says the new salary sacrifice rules will “more or less annihilate flexible remuneration, cost employees a great deal of tax and their employees a hefty increase in National Insurance Contributions”.
Benefits in kind provided under “optional remuneration arrangements” will be subject to Income Tax and Class 1A National Insurance Contributions. Pension saving and related pension advice are exempt. You can read a full analysis of the salary sacrifice changes starting in this tax year.
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