Isa allowances go up
The amount you can save into an Individual Savings Account (Isa) rises from £15,240 to £20,000 from April – its highest level ever.
This £20,000 can go entirely into a cash Isa or a stocks and shares Isas, or be split between the two. The interest on savings in a cash Isa is tax-free, while investors in stocks and shares Isas don’t have to declare dividends or capital gains to the taxman.
Personal allowance goes up
The personal allowance – the amount you can earn before paying income tax – will rise with the start of the new tax year from £11,000 to £11,500.
The threshold for paying higher-rate, 40pc, tax will also rise from £43,000 currently, up to £45,000. The level at which high earners start to pay additional-rate, 45pc tax, remains unchanged, at income over £150,000.
Lifetime Isas introduced
The Lifetime Isa, or “Lisa” launches. It has a dual purpose – to fund a first-time property purchase and save for retirement.
From April 6, savers can put £4,000 a year into a Lisa, which will be topped up with a 25pc government “bonus”, making a total of £5,000. As with other Isas, you can put money in cash or invest in funds and shares.
You can only take out your cash penalty-free from age 60 or if you are using it for a deposit on your first property. Cashing in early for any other reason will see a 25pc exit penalty applied.
‘Inheritable’ Isas improve
The rules by which Isas may effectively be “inherited” after the holder’s death will be relaxed as early as next month.
Currently, although the tax breaks within an Isa – exemption from capital gains and income taxes – expire on the death of the Isa holder, the surviving spouse can set up a new Isa for an equivalent amount.
New legislation due to come into force in later this year will mean that income and growth of the assets inside the Isa will remain exempt from tax during the process of transferring them to the new owner. The precise rules have still to be finalised.
Buy-to-let investors lose their tax perk
From April, buy-to-let investors won’t be able to offset the full cost of their mortgage interest against rent.
This change was announced in 2015 and will be phased in from the 2017-18 tax year, when only 75pc of interest will be deductible.
Currently an investor who receives £18,000 a year in rent and pays £12,000 a year in mortgage interest could deduct the full £12,000. But from April, he could deduct only £9,000, meaning he would pay tax on profits of £9,000 instead of on £6,000, as now.
Inheritance tax break starts applying to family homes
From April the “main residence nil-rate band”, or the “family home allowance”, will be worth £100,000 per person when passing on a main residence, in addition to the existing £325,000 per person allowance.
This means each individual can pass on £425,000 without paying inheritance tax (40pc) so long as it includes the family home and passes directly to children or grandchildren, and not via a discretionary trust.
The new allowance will increase by £25,000 a year until it reaches £175,000 in April 2020. That will give each person a £500,000 allowance, or £1m for a couple.