The new tax year has seen the introduction of a number of changes to taxation and savings.
Faced with a tax system that seems to be ever more complicated, now might be a good time to review your plans, to understand what new opportunities exist and how any changes may affect you.
Individual savings accounts (Isas)
The Isa annual allowance has been boosted significantly to £20,000.
A quarter of adults now invest in an Isa, yet only 9% of Isa investors make full use of their allowance.
What’s more, 80% of subscriptions continue to be deposited in cash Isas, despite the record-low rates on offer and the impact of rising inflation on the real value of cash.
The full tax saving and investment benefits of Isas can only be achieved by investing for the long term, so it makes sense to use your allowance early in the tax year to put your money to work – and out of the taxman’s reach – for longer.
Junior Isas
The financial challenges facing younger generations are well-documented. Only 34% of 25–34-year-olds now own a home, compared to 60% just 20 years ago. University students will graduate with an average debt of £44,000.
The amount that can be invested for each child into a junior Isa has increased to £4,128 for this tax year.
An investment in a junior Isa is locked in until the child is 18, at which point it is rolled over into a standard Isa.
As well as offering a helping hand, gifting to children can help older generations with their estate planning.
Pensions
Following the Spring Budget, the UK Government was forced to drop its planned rise to National Insurance contributions for the self-employed.
This has triggered renewed speculation that pension tax relief is still in the firing line, as the government now needs to find other ways to raise the lost revenue.
A flat rate of pension tax relief has reportedly been ruled out but a further cut in the annual pension allowance could be back on the table.
Given the uncertainty, it seems sensible to make the most of the allowances and reliefs available now.
People over 55 who have already accessed their pension flexibly can now only contribute £4,000 a year to a pension – down from £10,000.
Inheritance tax
The nil-rate band will remain frozen until 2020/21 but the new tax year sees the phased introduction of a new residence nil-rate band, set at £100,000 per person in 2017/18 but rising to £175,000 in 2020/21.
Combined allowances mean that from 2020/21 married couples with children could pass on up to £1million free from inheritance tax, including the value of their family home.
The rules, which could have a significant impact on estate planning, are complex and not everyone will benefit. For example, estates worth £2million or more will see the new allowance gradually tapered.
However, the opportunity to make gifts of up to £3,000 each year remains unchanged – providing a way to give loved ones a financial boost and the chance to see them enjoy it.
Savings and dividend income
One Budget surprise was the decision to cut the tax-free dividend allowance from £5,000 to £2,000 from April 2018.
Although the benefits are reduced, it is still worth couples redistributing investments between them to maximise their allowances.
But transferring assets to make the best possible use of Isa and pension allowances may be more important.
The personal savings allowance remains untouched. It offers a nil-rate income tax band on bank or building society interest of £1,000 a year for basic rate taxpayers and £500 for those paying at the higher rate.
While not providing a complete shelter from tax on interest, the availability of the allowance continues to prompt questions over the value of Isas as a home for cash savings.