Follow this action plan to ensure that you make the most of your allowances and reliefs — this year and next
With less than a fortnight to the end of the tax year and a range of changes set to kick in, we look at how you stand to gain — or lose.
The personal allowance, the amount you can earn before tax, will rise from £11,000 to £11,500 from April 6. This change does not affect those who earn £123,000 or more because their personal allowance will be tapered to zero.
The higher-rate threshold (the point at which you start paying 40 per cent tax instead of the basic rate of 20 per cent) will rise on April 6 from £43,000 to £45,000. In Scotland the higher-rate threshold stays the same. The changes are part of the government’s plan to raise the personal allowance to £12,500 by 2020 and for the higher-rate threshold to be increased to £50,000.
Almost 29 million people will benefit from the changes and 1.6 million will lose, according to Revenue &Customs. It calculates that a basic-rate taxpayer will gain an average of £56 a year, a higher-rate taxpayer, £233 and additional-rate taxpayers £110.
Personal allowance Increase of £500
Higher-rate threshold Increase of £2,000
A new home tax allowance — or residence nil-rate band — will mean that more estates will be free of inheritance tax from April 6. In the 2017-18 tax year the maximum amount that can be passed on tax-free under the allowance will be £100,000 per person. This can be added to the existing £325,000 inheritance tax allowance.
There are a few basic rules, including that the person passing on the home must have died on, or after April 6; the deceased’s direct descendant, or their spouse, must inherit the home or a share of it; and for estates valued at £2 million or more the allowance is tapered away, losing £1 for every £2 the estate is worth above £2 million.
Any unused allowance can be transferred to the estate of the deceased’s spouse or civil partner. This can be done even if the first person died before April 6 this year, even though the allowance wasn’t available at that time. The allowance will gradually rise to £175,000 per person by 2020-21.
The allowance does not apply to transfers and gifts made during a person’s lifetime, and it will not apply to all properties held in trust. There is, however, a downsizing allowance available to those who moved to a smaller home or sold their home after July 8, 2015. Allowance change Increase of £100,000
Individual savings accounts
The maximum amount that can be saved tax-free in an individual savings account (Isa) is to increase from £15,240 to £20,000 from April 6. This can be held in a combination of cash, stocks and shares, or Innovative Finance Isas.
The amount you can save in a Junior Isa tax-free will rise from £4,080 to £4,128. This is in addition to the savings allowance, which allows basic-rate taxpayers to earn £1,000 interest without being taxed and higher-rate payers to earn £500 interest.
The Lifetime Isa (Lisa) will launch on April 6. Those aged between 18 and 40 will be able to save up to £4,000 a year tax-free and the government will add a 25 per cent bonus. If you want to make the most of this year’s allowance and our Isa guide at thetimes.co.uk/isaguide. Note also that the pension tax reliefs could be under threat in the autumn budget, so consider making contributions to your plan.
Allowance change Increase of £4,760
Salary sacrifice schemes
The rules around salary sacrifice schemes, which enable perks to be paid for out of employees’ salaries before tax — will change from April 6, with some employees facing higher taxes on benefits such as health checks, parking, mobile phones and gym membership.
Salary sacrifice schemes benefit from reduced tax and national insurance. From April 6 the tax and employer national insurance benefits from some of these schemes will be taken away.
Company pensions, childcare, childcare vouchers, workplace nurseries, cycle-to-work schemes and ultra-low emission vehicles are not affected. Company cars, accommodation and school fees will be affected from April 2021. The Revenue estimates that this will affect one million people.
PWC, the accountant, has calculated that a health screening scheme costing £400 a year under salary sacrifice will cost a basic-rate taxpayer an extra £80 a year and a higher-rate taxpayer an extra £160. Membership of a gym at work worth £30 a month will cost between £72 and £144 more. A mobile phone contract of £25 a month will cost an extra £60 to £120. Those who take advantage of car parking schemes at £5 a day will be heavily penalised, paying between £261 and £522 a year more.
Gym membership cost Increase of between £72 to £144
Landlords with mortages From April 6 offseting the cost of mortgage interest payments will gradually be eroded until the payments qualify for only the basic-rate tax reduction in 2020-21.
Driving up other costs by David Byers
It isn’t only tax changes that could soon be hitting our pockets — drivers will also suffer from a range of government crackdowns in the new tax year.
Diesel Gordon Brown cut the tax on diesel cars in 2001 because they produced lower carbon dioxide emissions. Now, after disclosures about the amount of nitrogen dioxide these cars emit, Philip Hammond looks certain to target them in his autumn budget. Fuel duty for petrol and diesel cars is frozen at 57.95p.
Diesel car sales are already falling — new registrations were down 9.2 per cent last month compared with February last year. Steve Gooding from the RAC Foundation says: “Will all diesels be worthless in five years? No. Will some of them be worth significantly less than if we had not had the VW scandal? Certainly, yes.”
Older cars In October a T-Charge scheme will be introduced in London by Sadiq Khan, the mayor, forcing owners of any car with engines built before 2005 to pay up to £21.50 a day to drive within the zone. The charge is £10 higher than for cleaner cars, which will continue to pay £11.50. An ultra-low emission zone will also be introduced as early as 2019 targeting any vehicle that does not meet exhaust emission standards. The zone, smaller than the existing Low Emission Zone but still covering much of greater London, will charge polluting vehicles £12.50. Transport for London is also developing a diesel scrappage scheme to persuade owners to trade vehicles for cash. Clean air zones are being mooted for cities, including Sheffield, Bristol, Liverpool and Manchester and punitive parking charges are being introduced for diesel cars in London.
Insurance costs According to the AA, the average Shoparound premium for car insurance (based on the five best quotes) was £633 at the end of 2016 — up 11.5 per cent in a year. Motoring groups blamed the government’s 10 per cent Insurance Premium Tax for the rises, and it is due to increase to 12 per cent in June, adding another £11 to the Shoparound premium.
Vehicle excise duty Car tax rules are changing radically — but only for new cars registered from April 1 this year. Zero-emissions new cars (electric or hydrogen) will be the only ones exempt from duty. All other vehicles will pay a flat rate of £140, except for the first year after they are registered when charges will vary from £10 for the lowest emissions (measured in grams of CO2 per km) to £2,000 for the highest polluting. At the moment all new cars emitting less than 99g/km are exempt from tax.
There will also be a fee of £310 for vehicles that cost more than £40,000 for years two to five of ownership and electric cars costing over £40,000 will no longer be road tax-free.
If your low emissions car was registered before April, however, it remains free for life.