6 ways the new tax year affects you

The new tax year heralded the introduction of a number of changes that could work in your favour if you are young, free and single…

You don’t often get invited to a new tax year’s eve party. But there are plenty of reasons to celebrate the start of the 2016-2017 tax year.

Here are six ways the new tax year could affect you.

1. More tax-free cash

The tax-free personal allowance has risen from £10,600 to £11,000, and is set to hit £11,500 in April 2017.

This means you can now earn £11,000 before you have to start paying tax on your income.

The higher rate income tax threshold has also risen to £43,000 – and will increase again to £45,000 in April next year.

Any employees aged 25 or over are also guaranteed a new national living wage of at least £7.20 an hour.

2. New personal savings allowance

If you’re trying to save more, the good news is you’re unlikely to have to pay tax on the interest you earn from now on.

Previously, all income earned on savings accounts in the form of interest was taxed at 20% at source – with higher rate taxpayers having to declare any extra owed on their tax returns.

Now, though, basic rate taxpayers can earn up to £1,000 tax-free interest a year on standard savings and current accounts.

For higher rate taxpayers, the allowance is £500 a year, while there is no allowance for those in the highest tax bracket.

You can read more about this here.

3. Freeze on petrol duty

Fuel duty is being frozen once again this tax year, so you won’t notice a sudden hike when you next fill your car up.

Be aware though that insurance premium tax rate is rising by 0.5% so you’ll pay more for your car insurance.

4. Nicer ISAs

The amount you can save into a tax-efficient ISA has remained at £15,240 this tax year, but will rise to £20,000 in April next year.

However, if you use up your full cash ISA allowance and then withdraw some of it, you can now top it back up again in the same tax year.

The government is also trying to encourage more people to save to buy homes and for retirement.

Help to Buy ISAs, with which the government boosts your savings towards a first home by 25%, are already available.

But from April 2017, anyone under 40 will be able to open a Lifetime ISA, into which the government will also contribute towards a first home and/or retirement fund. You can find out more here.

5. No bar price hikes

Duty on beer, spirits and cider is being frozen this tax year, so getting a round in should not suddenly become more expensive.

Other alcohol duties will rise in line with inflation, which is currently very low.

6. Lower Capital Gains Tax (CGT)

You have to pay CGT when you make money on investments, for example when you make a profit by selling some shares.

Until now, this tax was set at 18% for basic rate taxpayers and 28% for higher rate taxpayers.

But from this month, the top rate has fallen to 20%, while the basic rate is now just 10%.

The changes are designed to encourage investment in businesses, but will not benefit landlords selling on residential, buy-to-let properties.
 

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