Eight changes to your money happening next month
The new tax year is looming, and with that always comes a raft of changes to tax rates, the limits for tax breaks and how much of your pay goes into your back pocket each month.
The changes happen on 6 April which is the start of the new tax year. Some of them have only just been announced in last week’s Budget and could be a welcome surprise to earners and investors.
1. Junior ISA allowance jumps
Parents will see a massive jump in the amount they can put away in a Junior ISA, with the annual limit more than doubling from the current £4,368 to £9,000.
It’s the biggest jump in the allowance since the Junior ISA launched in 2011. The increase in allowance means a parent starting saving next month for a newborn child could build a tax-free pot of more than £240,000 by the time their child reaches 18, assuming they put the maximum £9,000 in each year and the investments grow by 4% every year after charges.
2. Capital gains tax allowance increases
The amount investors can make each year in capital gains before they pay tax has increased from the current £12,000 to £12,300 from next month, broadly in line with the CPI measure of inflation.
The move will save higher and additional-rate taxpayers with gains above the limit £60 a year and basic rate taxpayers £30 a year, on non-property assets. It will represent a bigger saving for property assets that attract a higher rate of capital gains tax.
3. Less National Insurance to be paid
One of the big changes from the Budget was giving most earners a handout by raising the threshold at which you pay National Insurance from the current £8,632 to £9,500.
This change means workers will see an almost immediate benefit with around 31m people set to profit – based on Government estimates. Estimates of how much you’ll save vary; the Institute for Fiscal Studies says it’s up to £85 a year while the Government says £104 a year.
4. More generous inheritance tax breaks
From 6 April everyone will be able to leave more money as part of their estate before they have to pay inheritance tax. The newest allowance has been increasing gradually since it was first introduced in April 2017, meaning anyone with residential property was given an extra inheritance-tax-free allowance. It will go up one final time in April to £175,000 per person.
This means that including the standard nil rate band, a couple can leave a property worth £1m entirely inheritance tax free. There are some tricky rules you have to stick to, so the property must be left to a child, grandchild, or step versions. Those with very large estates won’t get the full amount, as anyone with an estate valued at more than £2m will lose the allowance by £1 for every £2 they are over this limit.
5. Landlord tax breaks axed…
Landlords will see another hike in taxes from 6 April, as their previous tax breaks are ratcheted down again. Over the past four years the Government has been gradually reducing the amount of mortgage interest landlords can use to offset against their income, with the final change coming this April.
It was cut last year so that only 25% of landlords’ mortgage costs could be set again profits, but that falls again in April so that none of the costs can be offset. Instead buy-to-let investors will get a basic rate tax relief reduction at 20%.
The move only affects higher or additional-rate taxpayers, although the move itself will push some landlords from the basic-rate tax bracket into the higher-rate bracket. As an example, a higher-rate taxpayer landlord who gets £1,000 a month in rent and has mortgage costs of £600 a month would have paid £1,920 in tax pre-2017, but will pay £3,360 in tax from April.
6. …while second homeowners face higher taxes too
Anyone who has rented out their home after moving out, rather than selling it immediately, will face a higher tax hit from April. The Government has made three big changes to how the tax works when you come to sell this property.
Firstly, many sellers will lose the ‘lettings relief’ tax break, affecting how much capital gains tax you pay when you sell the property. Currently you get capital gains tax relief up to £40,000 per person (so £80,000 per couple) if you let out a property that was your main home.
From next year this relief will only apply to landlords who are actually living in the property with their tenants.
The next big change is to private residence relief, which currently means that any increase in the property’s value during the final 18 months that you own a property is not counted for capital gains tax purposes. However, from April that will be limited to nine months.
The third change is that you will have to pay any capital gains tax you owe much more rapidly. Currently you just have to pay this bill by the end of the January in the following tax year, but from April you have just 30 days to pay the tax due on any gains from the sale of UK residential property. If you don’t pay in this time you’ll face fines from HMRC.
There’s little landlords can do about these changes other than be aware of them.
7. Student loan repayments fall
Graduates will get a small boost from next month, as the amount you can earn before starting to repay your student loan will increase from £25,725 to £26,575, a rise of 3.3%. It means if you earn less than £26,575 you won’t pay anything back.
For those over this limit, you repay your loan at a rate of 9% above this figure, so the hike will mean graduates get an extra £76.50 in their back pocket. Meanwhile those on a Plan 1 loan – so those who went to university between 1998 and 2011 – will see their threshold rise from £18,935 a year to £19,390.
8. Overdraft fees will rise
The new rules on how banks charge for overdrafts come into place in April, but in reality many banks are bringing in their new charging structures before then with lots settling on the 40% mark for overdrafts.
The FCA’s rules aimed to simplify the overdraft market meaning banks won’t be able to charge more for unauthorised overdrafts than for arranged ones, and they must advertise clear percentage fees, not an array of charges. In reality, many people in arranged overdrafts will see their costs double when the new charges come in.