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Five changes coming in today that will save you money
It’s the first day of the new tax year, which means a raft of changes come into force today. Here we round-up five new measures that could make your money go further.
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New ISA allowance of £20,000
For the 2017/18 tax year, the amount of money you can stash into an ISA, out of reach of the taxman, is £20,000. This is a significant increase from the previous limit of £15,240.
There are six different types of ISA available in 2017 – Cash ISA, Stocks and shares ISA, Lifetime ISA, Junior ISA, Innovative Finance ISA and Help to Buy ISA.
They all have different features and deciding which is the best one for you will depend on your personal circumstances. Are you saving for your first home? Will you need instant access to your cash? Are you prepared to take on more risk for potentially greater return?
Read our guide to the six ISA products on the market to help you decide.
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Lifetime ISA launches
This is one of the six types of ISA now available but as it is brand new, it’s worth dedicating a bit of time explaining how it works.
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The aim of the Lifetime ISA – or LISA as it has become known – is to provide people under 40 with a way of saving for their first home and retirement.
You can save up to £4,000 a year into a LISA and the government will add a 25% bonus. So, if you save the maximum £4,000, you’ll get £1,000 from the state.
You can take your money out of a LISA, but if you do before the age of 60 and it’s not going towards your property purchase, you will have to pay a 25% penalty. There is no penalty if withdrawals are made in the first year of savings.
Bonuses are paid until you reach 50 and at this point you can’t make any more contributions.
In theory, you can choose between a cash LISA or a stocks and shares version. But as things stand, there are no cash LISAs available. Skipton Building Society is the only bank or building society to confirm it will launch a cash version in June.
So far three investment platforms – Hargreaves Lansdown, Nutmeg and The Share Centre – offer a stocks and shares LISA.
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Personal allowance and higher rate tax threshold both increase
The personal allowance is the amount of income you can earn before you start paying tax. From today it rises from £11,000 to £11,500. When former chancellor, George Osborne, announced the increase last year, he said it would be a tax cut for 31 million people and mean a typical basic rate taxpayer will pay over £1,000 less income tax than in 2011.
The point at which taxpayers start paying the higher rate – 40% -has gone up today from £43,000 to £45,000. This change was also announced last year, with Osborne saying it would lift half a million people out of the higher tax band altogether.
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Marriage allowance increases
The marriage allowance lets couples transfer 10% of their unused personal allowance – the amount they earn before paying tax – to their spouse or civil partner.
To be eligible, one partner needs to earn under the personal allowance (£11,500 for 2017/18) and the other must be a basic rate taxpayer. You both need to have been born on or after 5 April 1935.
As the personal allowance has increased from £11,000 to £11,500 from today, the marriage allowance is now £1,150, up from £1,100.
That means the non-taxpayer (the person earning below £11,500) can transfer £1,150 to their partner, increasing their personal allowance to £12,650 and saving them £230 in tax (as they would have had to pay 20% on that extra £1,150).
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NS&I three-year bond paying 2.2% – launches very soon
This highly anticipated savings product is not available yet, but is set to launch by the end of the month.
The market-leading three-year Investment Guaranteed Growth Bond comes from the government savings arm, NS&I.
It pays 2.2% on deposits up to £3,000, with a minimum investment of £100.
It is available online only to savers aged 16 and over, for 12 months and will be subject to a 90-day interest penalty for early withdrawals.
Demand for the new bond is expected to be high. The next best three-year bond from OakNorth Bank pays 1.91% and requires a minimum deposit of £1,000.