From today a host of changes take force, which could see the tax you pay and the savings you make alter. Other changes will see new pension freedoms taking effect, as well as the ability to transfer Child Trust Fund savings into a Junior ISA.
Here's a round-up of the key changes and where you can find more information about them on MoneySavingExpert.com:
1. ISA allowance increases
A cash ISA is just a savings account you don't pay tax on. From today, the amount you can save in one this tax year increases to £15,240, up from £15,000 the previous tax year.
See our Full ISA guide for more ways to save without paying tax and for a full update of the top rates.
2. Child Trust Funds can be converted to Junior ISAs
If your child has a Child Trust Fund (CTF) account you'll be able to transfer it to a Junior ISA (JISA) from today. CTFs, which were available to all babies born between September 2002 and January 2011, pay worse rates than JISAs which are available for children born outside these dates.
Martin Lewis, founder and editor of MoneySavingExpert.com, says:
"Child Trust Funds have been dead products ever since Junior ISAs were introduced in January 2011. So today is a great day for parents of 4 to 11-year-olds – finally the thing many of us have campaigned for – has happened.
"From today you can convert your Child Trust Fund into a Junior ISA and while the top paying Junior ISA at 3.25% is only 0.25% points higher than the best Child Trust Fund, that underestimates the real difference – there's more choice, more competition and a future for Junior ISAs unlike CTFs."
You can save the same amount of money in a JISA as a CTF with the allowance today increasing to £4,080, up from £4,000.
3. New tax-free savings come into force
If you earn less than £15,600 a year in income and savings interest combined, you won't have to pay any tax on the interest paid on the savings. Plus, if your savings interest takes you over the £15,600 limit, there'll also be a way to get back some of the tax you pay on interest.
You'll need to register with any bank or building society you have savings with to pay you interest without the tax taken off. See our Tax-free Savings guide to find out if you're eligible.
1. Personal allowance increases
The basic personal allowance – the amount you can earn before paying income tax – rises from £10,000 to £10,600 for the following:
- Born after 5 April 1948: If you earn under £100,000, your personal allowance is £10,600. Between £100,000 and £121,200, it decreases by £1 for every £2 your earn until it reaches £0. Over £121,200, your personal allowance is £0.
- Born between 6 April 1938 and 5 April 1948: If you earn under £100,000, your personal allowance is £10,600. Between £100,000 and £121,200, it decreases by £1 for every £2 your earn until it reaches £0. Over £121,200, your personal allowance is £0.
- Born before 6 April 1938: If you earn under £27,700, your personal allowance will be £10,660. For those earning between £27,700 and £27,820, it decreases from £10,660 by £1 for every £2 you earn until it reaches £10,600. Earn between £27,820 and £100,000 and your personal allowance stands at £10,600. Between £100,000 and £121,200, it decreases from £10,600 by £1 for every £2 you earn until it reaches £0.
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2. Income tax rates change
Once you know your personal allowance, anything extra earned will be subject to income tax. There are three marginal income tax bands, which means you only pay the specified rate on that portion of salary.
- Under the £10,600 personal allowance: No income tax is payable.
- For most earning £10,600 to £42,385: You'll pay 20% tax (in the last tax year, 20% income tax was paid on earnings between £10,000 and £41,865).
- For most earning between £42,386 and £150,000: You'll pay 40% income tax (in the last tax year, 40% income tax was paid on earnings between £41,866 and £150,000).
- For those earning over £150,000, it's 45% income tax (no change from the last tax year).
3. National Insurance rates change (for the employed)
In addition to income tax, most UK workers also have National Insurance contributions deducted from their pay, which kicks in based on your earnings from the age of 16. You stop paying when you reach retirement age.
From today, those employed will have the following National Insurance to pay:
- Earning under £155/week or under £8,060/year – no national insurance to pay (this has increased from under £153/week or under £7,956/year in the last tax year)
- For those earning between £155 and £815/week or between £8,060 and £42,380/year, it's 12%, (increased from £153 and £805/week)
- For those earning over £815/week or over £42,380/year, it's 12% on everything up to £815/week and then 2% on everything above that (this has changed from over £805/week).
What is my take home pay after both Income Tax and National Insurance have been deducted?
|SALARY (PRE-TAX)||TAKE HOME PAY 2015/16|
4. Married couples allowance increases
If you're married or in a civil partnership and one partner was born before 6 April 1935, then you get an extra married couples' allowance which reduces your tax bill. 10% of this allowance is then subtracted from your annual income tax.
If you were married before 5 December 2005, it's automatically worked out using the husband's salary but for couples married on or after 5 December 2005, it uses the highest earner's salary.
If your salary is under £27,820, the married couple's allowance is £8,355. Between £27,820 and £38,090 it decreases from £8,355 by £1 for every £2 you earn until it reaches £3,220. Over £38,090, it's £3,220.
Once you know your allowance, work out 10% of it as you'll receive this amount in tax relief.
1. State pension increases
The basic state pension is a Government-administered scheme, funded by NI contributions, to give people who've reached state retirement age a guaranteed weekly income. This is now £115.95/week for a single person (£5,881/year), up from £113/week in the previous tax year.
If you're married and you've both built up the full number of state pension qualifying years, you'll get £231.90/week up from £226.20/week. See our State Pensions guide to make the most out of retirement.
2. Pension Credit increases
If you're on a low income you can boost your basic state pension by claiming pension credit. It comes in two parts: the first part is a guaranteed top-up for everyone, but how much you'll get for the second part will depend on how much you have in savings.
See our Pension Credit guide to boost your state pension. Here's what's changing:
- Guarantee credit: For single pensioners with weekly income (including pension) below £151.20, pension credit will top you up to £151.20. If you have a partner and your joint weekly income is below £230.85, it'll top you up to £230.85.
- Savings credit (for those aged 65+): The savings credit is a reward for those with a modest income who have saved for retirement. To qualify, you have to have a minimum income of £126.50 a week if you're single and £201.80 a week if you're a couple. The maximum you can get per week is £14.82 for a single person and £17.43 for couples.
3. New pension rules take force
From today, provided you're over 55, you can take 25% of your pension pot as a tax-free lump sum (same as in the last tax year), but anything above this amount will be taxed as regular income, not at 55%.
So if you're a basic rate taxpayer, you'll pay 20% tax (this does not apply to final salary pensions where your retirement income is based on your final salary at the company that provides it and length of service).
Under previous pension rules, many felt they had no choice but to use their pension to buy an annuity, which gives you an income for the rest of your life in return for your pension pot, but from today, pensioners will have another alternative to annuities.
Martin Lewis, founder and editor of MoneySavingExpert.com says:
"I suspect George Osborne does picture himself as a financial freedom fighter. Yet only time will tell whether pension freedom reforms will paint him as the man who liberated older savers, or who exposed them to huge risk.
"Of course, for the financially savvy choice is a huge boon. Yet more choice means more complexity and it's worth remembering 60% of people just got an annuity with their pension provider – often the worst decision. With a huge array of varying tax treatments and products, making the right choice is not that easy.
"Plus there's the big picture concern – not that some will splash all their retirement savings on a Ferrari in year one – but the opposite. Older savers hate to 'spend their capital' and if the same psychology works with pensions, many will be nervous about releasing the cash too early out of fear they won't have enough in old age and will therefore sit on it, never spending it, depriving themselves of the benefit and living a worse life than necessary."
See our Pension Freedom guide for a full explanation of what's changing and our Annuity guide for a free PDF or printed guide if you know an annuity is the right retirement solution for you and want to know more.