2017 is only days away and most will be anxious for what the year has in store for them. We don’t have all the answers, but we definitely do know about tax.
To start off, income tax. The tax-free personal allowance has been increased. Your tax-free personal allowance is the amount of money you are allowed to earn before income tax is payable. This change from £10,600 to £11,000 is one to be celebrated for many. To add to the good news, a rise to £11,500 will come the following tax year.
Another change to look out for: The amount of money you are able to earn before having to pay the higher-rate of income tax (40%) will increase from £42,385 to£43,000. Although not a massive change, by April 2017 it is set to rise to £45,000 and a further £50,000 by 2020.
The marriage allowance is set to improve (a tiny bit). It may be small, but the marriage allowance will be going up from £1,060 to £1,100. To benefit you need to have an income of the new personal allowance (£11,000) or less and your partner must fall into the new basic-rate taxpayer sect (£11,001-£43,000).
The new national living wage for employees age 25 and over will rise to £7.20. Although, this actually cam into affect on the 1st April this year (5 days before the start of the new tax year). This is a 50p extra an hour improvement on the £6.70 pay for workers age £21 and over.
Stamp duty is going up. That means landlords and buyers of second homes will have to face a 3% surcharge on the existing price band from 1st April 2016.
Another hit to the landlords: Wear and tear allowance is being drawn to an end. The allowance meant that landlords could offset 10% of their rental income against tax for maintenance, regardless of whether any repairs were carried out. From April 2016, only maintenance/repair work that can be proven is allowable.
Capital gains tax will fall by 10% for both higher rate and basic rate taxpayers. However, the Capital Gains Tax rate on residential property sales will remain at 18% for B/R taxpayers and 28% for H/R taxpayers.
Personal savings will also be active. From the 6th April, individuals with taxable income between £17,000 and £43,000 a year are eligible to a £1,000 tax-free allowance. Higher rate taxpayers are also allowed access to the allowance, however the amount is capped to £500. ISA allowanced are frozen at £15,240, while Junior Isa’s remain at £4,080.
Pensions basic state pension will rise to a maximum of 119.30 per week from £115.95. A new state pension: those reaching state retirement by 6th April 2016 could receive up to £155.65 a week under the new single-tier pension, but not everyone will be eligible.
There will be a reduction in lifetime allowance. For the 6th April this year the lifetime allowance was reduced from £1.25 million to £1 million. The rate of tax you are required to pay on your pension savings above your lifetime allowance depends on how the money is paid to you. If you get it as a lump sum the rate is 55%, however if you get it in any other form the rate is 25%.
Another change to expect in your next tax return is an end to National insurance ‘contracting out’. From 6th April 2016 individuals were no longer able to contract out of the additional state pension. The end of contracting out has meant that those who previously qualified for a reduced rate by way of a1.4% rebate will have to pay more national insurance this year.
You can tell if you’ve contracted in the past by checking payslips and checking the national insurance line. If you’ve contracted out it has the letter D, E, L, N or O next to it. The letter ‘A’ means your not contracted out.
There are also changes to be seen in investing. A new dividend tax allowance will affect all individuals in receipt of dividends, whether that is from a company as part of a remuneration strategy or from investments that are not held within an ISA or pension. Dividend tax credit rules will be replaced with a tax-free allowance. This entitles all individuals to the first £5,000 of income from dividends each tax year free from taxation. However, dividends over this level will be subject to tax and for basic-rate taxpayers this will be 7.5 %, while for higher-rate taxpayers it will be 32.5% and additional-rate taxpayers will pay 38.1%.
A tax-free childcare scheme will be introduced during early 2017. Working parents will be able to get up to £2,000 a year, per child, in tax relief to help cover childcare costs. This will replace the existing systems that allows parents to buy ‘childcare vouchers’ from their employer that enable each parent to pay for childcare worth up to £243 a month.
If you’re on the old system you don’t have to switch over. But once you’ve moved to the new one, you wont be able to move back again.
One change that has popularly been talked about in the press this year is changes to student loans. Maintenance loans have replaces maintenance grants. From the beginning of the 2016-17 academic year in September, maintenance loans have replaced grants. The loans will allow students to receive £8,200 per year, which is £766 more than the grant allowed. However, the money has to be repaid once the graduate earns more than £21,000 a year.