With the eyes of accountants, businesses and financial experts understandably fixed on Wednesday’s Spring Budget, it’s all-too-easy to forget that several tax changes, announced by former Chancellor, George Osborne, have already been set in motion and are due to come into force from April. Steven Glicher accountants thought it might be useful to remind people about these changes and focus on how they might affect you for the 2017/18 tax year and beyond.
So which pre-announced changes will Philip Hammond confirm in his Spring Budget speech?
Former Chancellor, George Osborne, was under pressure to modernise the inheritance tax system, and he pledged to make any necessary changes to ease the growing burden on the ‘squeezed’ middle classes. Those changes are due to come into force from April, 2017. From the 2017/18 tax year, the amount an individual can pass on to their family without having to pay inheritance tax is to increase significantly to take account of rising property prices and the fact that, for most working families, their major asset is not only their home, but also their primary place of residence.
From 6th April 2017, a new allowance – the ‘main residence nil-rate band’ will be introduced, starting at £100,000 and growing by £25,000 every tax year up until £175,000 (2020/21). This new nil-rate band is an additional allowance on top of the existing £325,000 inheritance tax allowance available to every UK individual. Consequently, from 6th April 2017, an individual leaving their main property to their children or grandchildren, will be able to pass on the following amounts tax free:
- £425,000 (2017/18)
- £450,000 (2018/19)
- £475,000 (2019/20)
- £500,000 (2020/21)
It’s worth noting that married couples and civil partners can also claim unused inheritance tax allowances from their spouse or partner. Consequently, the total amount a couple can pass on tax-free to their loved ones over the next years will be:
- £850,000 (2017/18)
- £900,000 (2018/19)
- £950,000 (2019/20)
- £1,000,000 (2020/21)
The personal allowance, that is the amount an individual can earn before paying income tax, is set to rise to £11,500 in 2017/18. Government sources say this increase should mean approximately 1.3 million people will no longer pay income tax. The thresholds for paying income tax for 2017/18 are 20 per cent for earnings between £11,501 and £45,500; and 40 per cent higher rate tax for earnings between £45,501 and £150,000.
Buy-to-let tax relief
From 2017/18 the amount of tax relief that can be claimed on mortgage interest by buy-to-let landlords will start to change. Currently, landlords are able to deduct the cost of the mortgage interest they pay from their rental income when supplying their taxable profits from second or multiple properties.
However, over the course of the next 4 years, landlords will gradually lose this benefit. From 6th April 2017 landlords will only be able to deduct 75 per cent, and then this amount will taper to zero by 2020/21.
From April 2017, the annual Isa allowance, which can be invested in a range of cash, stocks and shares also rises to £20,000 in 2017/18.
Former Chancellor, George Osborne, introduced the Lifetime Isa in last year’s budget to help people aged between 18 and 29 to save tax-free for their first property. As part of the Lifetime Isa the government committed to contribute £1 for every £4 an individual saved up to a maximum bonus of £1,000 per year.
One thing that wasn’t necessarily made clear is that if people withdraw their Lifetime Isa savings before the age of 60, without using it to purchase their first home, they may incur a hefty financial penalty.