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New tax year: will you be better or worse off?

The winners and losers of the 2017-18 tax year changes revealed

New tax year

April 6 is one of the most important dates on the financial calendar – the start of the new tax year, which signals both the launch of a raft of tax-saving opportunities, as well as hikes that can increase your bill.

The 2017-18 tax year is no different, with a raft of new changes being introduced, including bigger tax free savings accounts, more help for aspiring homeowners and a significant boost to the amount you can pass onto your children.

So, whether you’re a landlord that’s worried about losing interest relief on your mortgage payments, or an Isa investor that’s keen to make the most of the increased savings allowance, you’ll find a summary of all the big changes, and where you can go to find out more.

And why not make an early start on your 2016-17 tax return with the Which? Tax Calculator? You can tot up your bill from the last tax year and submit your return direct to HMRC.

Winners in the 2017-18 tax year

Taxpayers

The personal allowance, or the amount most people earn before paying tax, will rise £500 to £11,500 on 6 April. Almost everyone earning more than £11,500 will save £100 as a result. The main exception is those earning more than £100,000 a year, as they don’t receive the full personal allowance.

What’s more, the higher-rate threshold (the point at which you start paying 40% tax) rises from £43,000 to £45,000. This will cut tax bills for those earning over £45,000 by £400, on top of the £100 saving from the higher personal allowance.

The only exception is in Scotland, where the higher-rate threshold has been frozen, meaning the 40% rate kicks in on earnings over £43,000.

Isa investors

A big boost to the amount you can put into your Isa each year, from £15,240 to £20,000, will make it easier for savers and investors to cut their future tax bills.

Even though most people won’t be in a position to squirrel away £1,667 a month – the amount needed to to fill your Isa – those who receive a windfall, perhaps from a bonus, inheritance or premium bond payout, also stand to gain from the bump to the allowance.

Future homeowners

People saving to buy their first homes also stand to gain from the new lifetime Isa, providing they’re under 40 when it arrives on 6 April.

There won’t be lot of choice at launch as only a handful of companies expect to have products ready to buy straight away, but Lifetime Isas have some very attractive features, most obviously the 25% government bonus you can earn on your. Account holders can save up to £4,000 a year, and there’s more flexibility around deposits than its predecessor, the Help to Buy Isa.

Do watch out for the sting in the tail, though – unless you wait until you turn 60, or are using the cash to buy your first home, you’ll be charged a penalty to withdraw your money.

Inheritance taxpayers

The not-so-snappily-named ‘residence nil rate band is good news for those who want to leave property to children or grandchildren when they die. From 6 April, individuals will be able to pass on an extra £100,000 before they need to start paying inheritance tax, rising to £175,000 from April 2020. That’s on top of the £325,000 allowance available to everyone.

Crucially this extra allowance can only be used to pass on property, excluding buy-to-let investments. Spouses and civil partners can combine the new allowances, meaning a cool £1 million could be passed without paying a penny of inheritance tax by 2020.

Pensioners

Anyone receiving the state pension will receive an inflation-busting pay rise on 6 April, thanks to the triple-lock that ensures pensions rise by at least 2.5% a year, and don’t fall behind wages or prices.

Someone who retired under the old system (before April 2016) will see their basic weekly pension rise from £119.30 to £122.30. Those who retired later will get £159.55 each week (up from £155.65), providing they qualify for the full amount.

Low income workers

The national living wage has been pushed to £7.50 per hour, it’s only guaranteed to workers who are over-25. The minimum wage will rise for younger workers, as follows:

Age group Oct-16 Apr-17
25 and over £7.20 £7.50
21 to 24 £6.95 £7.05
18 to 20 £5.55 £5.60
Under 18 £4.00 £4.05
Apprentice £3.40 £3.50

Losers in the 2017-18 tax year

People who are inheriting money

While inheritance tax bills will fall for many because of the new allowances for property, some will end up losing some of these gains at the probate office. For now, before an inheritance can be distributed the estate’s executor will need to pay probate fees of £215. A controversial new tiered system arrives in May, resulting in a £20,000 bill for the wealthiest estates.

Retirees that didn’t buy a state pension top up

If you retired before April 2016, there’s a good chance you were offered a less good deal than those who retired later.

To close the gap, these people have had the opportunity to top up their state pension by up to £25 a week by paying a one-off payment into the national insurance pot. Pensioners won’t be able to buy this income boost after 6 April 2017.

However, people can still buy up to six year’s worth of National Insurance credits if they are missing them to boost their state pension.

Workers who’ve accessed pensions early

From 6 April, there will be a big drop in the amount you can save into a pension, if you’ve dipped into your retirement savings. Most workers can put up to £40,000 into a pension each year, but once you’ve touched your retirement funds, you’ll only be allowed to add an extra £4,000 each year.

In theory, this will stop people claiming two rounds of tax relief on their pension but cashing it out and putting it back in again. However, people who dip into their savings, perhaps to meet an unexpected cost, will have far less scope to top up their pension before fully retiring.

Landlords

Landlords face big increases to their tax bills, as the tax-relief available on mortgage interest begins to be tapered off. Under the old system, landlords can claim full relief on mortgage interest, which would be at 40% for a higher-rate taxpayer. By April 2020, landlords will only be able to claim tax relief on mortgage interest at the basic (20%) rate.

This change is being phased in over four years, so from 6 April 2017 landlords will be able to claim full relief on three quarters on their mortgage interest, but only basic tax relief on the final quarter. From April 2018, full relief can be claimed on half the mortgage interest, and basic-relief on the rest.

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