Financial changes to prepare for in 2016Savings, stamp duty and pension reforms on the way

31 December 2015

Financial changes 2016

Most savers will pay less tax on the interest they earn in 2016

The New Year is on its way, and with it will come new regulations that may have a major impact on your finances. 

Ensuring you're well prepared for these changes could make a huge difference to your overall earnings. 

Follow our expert advice to make sure you're financially equipped for 2016.   

Big changes for savers

Personal savings allowance

From April 6 2016, basic rate and higher rate taxpayers will be granted a personal savings allowance, which reduces the amount of tax they pay on savings interest. 

Basic rate taxpayers will pay no tax on the first £1,000 of savings interest they earn in the 2016-17 tax year, while higher rate taxpayers will pay no interest on the first £500 of savings interest received. 

This may encourage more people to store their cash savings in traditional savings accounts, as the tax due on interest paid by these accounts will significantly reduce. Basic rate taxpayers currently pay 20% tax on savings interest; higher rate taxpayers pay 40%. 

The Which? Money Compare savings tables let you search hundreds of savings accounts from providers large and small to find the right option for you.

Which? Money Compare table: instant-access savings accounts – hundreds of accounts compared

Flexible Isas 

The overall limit for Isas in the 2016-17 tax year will remain unchanged at £15,240. However, savers will be able to withdraw and replace Isa funds without losing any of their tax-free entitlement for that year. 

Which? Money Compare table: instant-access Isas – compare hundreds of cash Isas   

Innovative Finance Isas

It will become possible to invest savings with a peer-to-peer lending company under a tax-free 'Innovative Finance Isa' wrapper from April 2016. 

Peer-to-peer typically offers better returns than traditional savings options, but it comes with the risk of losing money if borrowers default on the loan you make. What's more, savings invested in Innovative Finance Isas will not be protected under the Financial Services Compensation Scheme (FSCS).

Find out more: peer to peer lending websites – we review the UK's most popular providers 

FSCS limit drops to £75,000

The FSCS refunds people's savings in the event of their account provider going bust. However, from 1 January 2016, the maximum amount of money refunded will drop to £75,000 per individual, per financial institution. 

Find out more: FSCS protection – see our step-by-step guide to protecting your savings

Stamp duty on second properties to skyrocket

Those buying second properties will face a bigger stamp duty bill from April 2016.

Each tier, or portion of the property price, will be subject to an extra 3% of stamp duty on top of the usual rate paid on a primary residence.   

With several changes to tax relief for landlords also being introduced, the overall profitability of buy-to-let properties as an investment will drop significantly.   

Find out more: buy-to-let stamp duty – calculate what you'll pay

New state pension to be introduced in 2016

The new flat rate state pension will be introduced in the new tax year. This only affects retirees who reach state pension age on or after April 6 2016. 

Those approaching retirement will also need to get to grips with the wealth of new income options for their pension introduced this year.

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