The new tax year begins on 6 April, and with it comes a raft of opportunities to save or make hundreds – and potentially thousands – of pounds in 2017.
In this story, we’ll show you how an increase to your tax-free allowances could boost your income by as much as £500 this year, how to grab more than £600 if you’re married and how the lifetime Isa can net you more than £1,000 for free, as well as the perks that are on the rise this year, meaning more money in your pocket.
And you can get a head start on your 2016/17 tax return with the Which? tax calculator. Work out how much tax you owe for the last tax year, get jargon-free hints and tips to save money, and submit your return direct to HMRC with Which?.
Click the links below to see how:
- You could save £500 on income tax
- Married couples can save £662
- The lifetime Isa could net you more than £1,000 for free
- Pensioners could get a £202 pay rise
- The Isa allowance gets a major boost
Keep £500 more of your income in 2017
Most people will be getting a pay rise on 6 April, thanks to a boost to the amount you can earn before you pay any income tax.
Known as the ‘personal allowance’ this amount increases from £11,000 to £11,500.
That’ll mean an extra £100 in your pocket in 2017 if you earn below £45,000 a year, and pay tax at the basic rate (20%).
If you pay tax at 40% and earn less than £100,000, you’re also heading for a pay rise. The amount above which you pay 40% tax is increasing from £43,000 to £45,000, resulting in an extra £400 a year.
Unfortunately, this doesn’t apply to people in Scotland, where the higher-rate threshold remains at £43,000 in 2017/18. Find out more in our guide to income taxes in Scotland.
The table below shows what your income tax bill could look like in 2017, compared to last year.
|Income tax pay rise – what will your bill look like in 2017-18?|
|How much you earn in 2017-18||Basic-rate tax paid in 2017-18||Higher-rate tax paid in 2017-18||Your total income tax bill in 2017-18||Your total income tax bill in 2016-17||Your annual pay rise|
Married couples can save up to £662 in tax
There’s more to marriage than just love and companionship – there’s a healthy tax-saving perk, too.
The Marriage Allowance lets married couples and civil partners transfer any unused personal allowance with their spouse, helping them reduce their tax bill.
In 2017, you’ll get a personal allowance of £11,500, and the Marriage Allowance allows you to transfer up to 10% of this – or £1,150 – to your spouse.
You need to be earning less than the personal allowance to have anything spare to pass on, and your spouse must earn less than £45,000, meaning they are a basic-rate (20%) taxpayer, to benefit from it.
If they do qualify, it means they can earn an extra £1,150 tax free. This would have been taxed at 20%, giving you a saving of £230.
Now, here’s the even better news. The Marriage Allowance was introduced in April 2015, and if you haven’t claimed it for the last two years, you can backdate it (up to four years, in fact). That means you can claim:
- £212 from 2015-16
- £220 from 2016-17
Making a total saving of £662 for all three years.
Lifetime Isa launches – get £1,000+ towards a new home
The lifetime Isa is the sleek new sibling in the Isa family, design to help under 40s get onto the property ladder or save for their retirement.
The premise is similar to the hugely popular Help to Buy Isa. For every £4 you save into a lifetime Isa, you’ll get a £1 bonus from the government, to a maximum of £4,000.
To max out your lifetime Isa, you can either put money in as lump sums or save £334 per month and, after 12 months, you’ll get a £1,000 government bonus. From April next year, the government will pay the bonus monthly.
But, you’ll also earn interest on your savings too. No cash lifetime Isas have launched yet, so we don’t know what rates will be on offer. But the best Help to Buy Isa currently pays 3% annual interest, which could mean an extra £120 in tax-free interest if you deposit a lump sum, or £64 in interest if you save the maximum monthly.
And from April 2018, you’ll start earning interest on the £1,000 bonus that drops into your lifetime Isa account, as well as on any monthly bonuses paid when you save.
If you choose an investment lifetime Isa, you run the risk that you could lose, as well as grow, some of your money. But taking some additional risk could net you a better return than cash over the long-term.
Watch our video below for all you need to know about the lifetime Isa.
Pensioners could get a £202 pay rise
The weekly state pension has enjoyed healthy increases over the past few years, as the government has applied a generous way of calculating how much more you’ll get each week.
Known as the ‘triple lock’, you’ll get the highest of inflation, weekly earnings or 2.5%. In 2017-18, the state pension is being increased by 2.5%.
But what does that mean for you? Well, your pay rise will depend on when you qualified for the state pension.
If you qualified for the state pension before 6 April 2016
- The basic state pension is being increased from £119.30 to £122.30
- This means an extra £156 in 2017-18.
- If you get any second state pension, this will increase by 1%
If you qualifed for the state pension after 6 April 2016
- The new state pension is being increased from £155.65 to £159.55
- This means an extra £202 in 2017-18
- Anything you earn above £159.55 from second state pension you built up rises by 1%
Your Isa allowance gets (almost) £5,000 nicer
This year, you’ll be able to shelter a whopping £20,000 of your savings and investments tax free in your individual savings account, or Isa.
That represents an increase of £4,760 on last year’s Isa allowance. And using an Isa helps you legally avoid an array of taxes on your savings and investment growth.
Income tax on your cash Isa savings
Savings interest is normally taxed at your income tax rate – 20%, 40% or 45%.
Basic-rate taxpayers can earn £1,000 interest tax-free outside of an Isa, while higher-rate taxpayers can earn £500 tax free. This is called the ‘personal savings allowance’.
Given the dire state of savings rates at the moment, basic-rate taxpayers would need around £100,000 in an easy-access account to even start paying tax.
But if cash Isa rates pick up in the future, or the government decides to scrap or reduce the personal savings allowance, placing them in this tax-free cocoon could help you cut down your bill.
Dividend tax on your stocks and shares Isa income
You could enjoy a much bigger tax saving if you’ve opted to invest through a stocks and shares Isa.
Dividends are part of the profits a company pays to shareholders, and can make for a decent, regular investment income.
Outside of an Isa, you can earn £5,000 in divdiends tax-free before you pay either 7.5% (basic-rate), 32.5% (higher-rate) or 38.1% (additional-rate) tax, depending on your own tax rate.
Inside an Isa, you pay no dividend tax at all. And in 2018, the £5,000 dividend allowance reduces to £2,000, making your stocks and shares Isa a much friendlier, money-saving home in the future.
Capital gains tax on investment profits
When you make a profit from the sale of your investments, it could be subject to capital gains tax.
This is 10% if you’re a basic-rate taxpayer or 20% if you’re a higher or additional-rate taxpayer.
For 2017-18, you have an annual capital gains tax allowance of £11,300. You pay the tax on any profits above this amount.
In an Isa, you can sell your investments for a profit and swerve capital gains tax altogether. If you’ve been investing over a number of years, and want to cash in on a larger chunk of your profits, you’ll be able to keep it all, rather than giving as much as a fifth (above the allowance) to HMRC.