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Spring Budget 2017: What happens to Income Tax IHT, ISAs & Pensions in April?

Ed Monk, Fidelity Personal Investing, 08 March 2017

It was a low key Budget for the UK’s personal finances, but that doesn’t mean there won’t be plenty of previously announced changes arriving in the new tax year.

The only new policies that came applied to the very wealthiest investors and the minority of workers who are self-employed or incorporated, with changes planned for 2018 onwards. Check our Spring Budget 2017 page for more details.

Below we round up what to expect for tax-free savings, income tax and inheritance tax on 6th April.

ISA allowances

The overall ISA allowance will jump to £20,000 from 6th April 2017, up from its current level of £15,240.

You can divide your allowance between different types of ISA. Money held in a Cash ISA, Stocks & Shares ISA and Innovative Finance ISA (for investments made through approved peer-to-peer platforms) all count towards the overall limit.

Money paid into a Help to Buy ISA (which will close to new applicants in 2019) and, as of next month, Lifetime ISA also count towards the overall limit, but these each have their own limits applied, as well as other rules.

The allowance for Junior ISAs will tick up after April as well, from £4,080 to £4,128.

Pension allowances

The headline allowances for pensions will not change on 6th April.

The Lifetime Allowance - the maximum that can be held in a pension without incurring tax charges - is set currently at £1m and will remain there, although it is scheduled to rise with inflation from April 2018.

(Bear in mind that individuals with more than this in their pension at the time of previously announced cuts to the Lifetime Allowance may have been able to obtain “protection”, giving them a higher Lifetime Allowance.)

The Annual Allowance will remain at £40,000 in 2017/18. However, previous cuts to the Annual Allowance mean the amount that can be contributed using “carry forward” will fall by £10,000 after April.

Additionally, a previously proposed change was confirmed in the Budget today. The amount that you can contribute to a pension once you start accessing it will fall from £10,000 to £4,000. This is known as the Money Purchase Annual Allowance and it kicks in once you make flexible withdrawals from a pension that go beyond the 25% of tax-free cash that is allowed.

Income tax thresholds

Previously announced changes to personal tax rates will begin from 6th April. The Personal Allowance, which is the amount you can earn before paying income tax, will rise from £11,000 to £11,500. The threshold for paying higher-rate 40% tax will rise from £43,000 to £45,000 and the threshold for paying additional-rate 45% tax will remain at £150,000.

The personal allowance is then gradually removed once earnings hit £100,000, and falls to zero for those earning £123,000 or more.

Inheritance tax

As previously announced, from 6th April there will be an extra allowance for inheritance if the deceased passes on a primary residence. The “family home allowance” boosts an individual’s nil-rate band for Inheritance Tax by £100,000.

This gets added to the existing £325,000 nil-rate band for estate, meaning each individual can pass on £425,000 without paying inheritance tax if the estate includes a primary residence.

The new allowance will increase by £25,000 a year until it reaches £175,000 in April 2020, taking an individual’s allowance to £500,000. Remember that unused allowance can pass to a surviving spouse or civil partner on death.

 


Important Information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Eligibility to invest into a pension and the value of tax savings depends on personal circumstances and all tax rules may change. You will not normally be able to access money held in a pension till the age of 55. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

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