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Make the most of your money in 2016

POSTED: 12th January 2016
IN: Personal Guides
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As we enter the New Year, Aldermore highlights some upcoming changes to the savings market that can help you make the most of your money in 2016.

When it comes time to set New Year’s Resolutions, personal finances are often at the top of the list, with many people pledging to be smarter with their money in the next year. If you’re looking to make the most of your money in 2016, there are a few things you need to be aware of.

Income Tax: Personal Allowance, Basic Rate Limit and Higher Rate Threshold

The personal allowance, which is the amount of your earnings you don’t pay any tax on, will increase from £10,600 to £11,000 next year. Also, there will only be one income tax personal allowance, regardless of an individual’s date of birth.

The government also announced plans to raise the basic rate limit to £32,000 for 2016-2017 and raise the higher rate threshold to £43,000.

So, from April 2016, the income tax rates will be the below:

Tax rate

Taxable income above your Personal Allowance

Basic rate – 20%

£0 to £32,000

People with the standard Personal Allowance will start paying this rate on income over £11,000

Higher rate – 40%

£32,001 to £150,000

People with the standard Personal Allowance will start paying this rate on income over £43,000

Additional rate – 45%

Over £150,000

 

In 2016-2017, these measures will benefit 29 million individuals: 24.1 million basic rate taxpayers, with average real gains of £38, and 4.9 million higher and additional rate taxpayers, who will make average real gains of £77.

These changes are also set to take an additional 277,000 individuals out of income tax altogether in 2016-2017.

Marriage Allowance

The marriage allowance is a new form of tax relief that, if you’re married or in a civil partnership, could see you up to £212 a year better off. The way it works is that it allows couples to transfer 10 per cent of their personal allowance between themselves.

To qualify for marriage allowance, you must meet the following criteria:

  • You must be married or in a civil partnership
  • One of you must be earning £10,600 or less (£11,000 from April 2016)
  • The other must be a basic rate tax payer (couples with a higher rate or additional rate taxpayer won’t be eligible)
  • You both must have been born after 6th April 1935

For example, Steve works part time and earns £6,000 a year, while his wife, Joanne, works full time and earns £28,000 a year. Steve’s full personal allowance for 2015-2016 is £10,600, but he is £4,600 under this, so can transfer £1,060 to Joanne. This brings her personal allowance up to £11,660, meaning she will save £212 (the 20 per cent tax she would have paid as a basic rate taxpayer).

Personal Savings Allowance

From April 2016 the government will be introducing a tax-free Personal Savings Allowance of £1,000, or £500 for higher rate taxpayers, on the interest that you earn on your savings.

What this means is that banks and building societies will stop automatically deducting 20 per cent in income tax from the interest earned on your non-ISA savings. Instead, you will receive your interest Gross without deduction and only be charged income tax by the Inland revenue on anything over the first £1,000 in interest your savings earn (or £500 if you’re a higher rate taxpayer).

The below tables demonstrate how much tax you will pay on your savings from April 2016, and how you could be up to £200 better off.

Basic Rate Taxpayers

Amount of savings

Amount of annual interest at 1.3% 

Tax current paid on those savings

Tax paid after April 2016

Amount saved

£25,000

£325

£65

£0

£65

£50,000

£650

£130

£0

£130

£75,000

£975

£195

£0

£195

£100,000

£1,300

£260

£60

£200

£150,000

£1,950

£390

£190

£200


Higher Rate Taxpayers

Amount of savings

Amount of annual interest at 1.3%

Tax current paid on those savings

Tax paid after April 2016

Amount saved

£25,000

£325

£130

£0

£130

£50,000

£650

£260

£60

£200

£75,000

£975

£390

£190

£200

£100,000

£1,300

£520

£320

£200

£150,000

£1,950

£780

£580

£200


Inheritance Tax

Inheritance Tax is the amount of tax paid on a person’s estate (property, money and possessions) when they die, with the current threshold being £325,000. If someone’s estate is less than the Inheritance Tax threshold of £325,000, the remaining threshold can be transferred to their husband, wife or civil partner’s estate when they die. This means the surviving partner’s estate can be worth up to £650,000 before any Inheritance Tax is due.

This threshold is set to increase incrementally over the coming years, under new measures announced by the government. While the new measures will not be introduced until April 2017, it still important that you are aware of them and how they might affect you in the future.

From 6th April 2017, the government will add a “family home allowance”, that will be worth £175,000 per person by 2020. This will allow individuals to pass on assets, including a family home, worth up to £500,000, or £1 million for married couples or civil partners, without paying any inheritance tax.

The below tables demonstrate the amount of inheritance tax you would be subject to under the new measures.

Single Person

Value of family home

Value of other assets

Total value of the estate

Current inheritance tax liability

Inheritance tax liability from April 2020

Amount saved

£175,000

£175,000

£350,000

£0

£0

£0

£200,000

£300,000

£500,000

£70,000

£0

£70,000

£250,000

£400,000

£650,000

£130,000

£60,000

£70,000

£400,000

£600,000

£1,000,000

£270,000

£200,000

£70,000

£750,000

£750,000

£1,500,000

£470,000

£400,000

£70,000

£1,000,000

£1,000,000

£2,000,000

£670,000

£600,000

£70,000

 

Married Couple

Value of family home

Value of other assets

Total value of the estate

Current inheritance tax liability

Inheritance tax liability from April 2020

Amount saved

£175,000

£175,000

£350,000

£0

£0

£0

£200,000

£300,000

£500,000

£0

£0

£0

£250,000

£400,000

£650,000

£0

£0

£0

£400,000

£600,000

£1,000,000

£140,000

£0

£140,000

£750,000

£750,000

£1,500,000

£340,000

£200,000

£140,000

£1,000,000

£1,000,000

£2,000,000

£540,000

£400,000

£140,000

 

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