The launch of the Innovative Finance Isa heralded the start of this year’s fiscal calendar.
The new tax year will also see the personal savings allowance set at £11,000 within the basic rate tax band of £32,000, meaning the majority of the working population can earn up to £43,000 without entering the higher tax bracket.
It is also possible to receive a further £5,000 in dividends without paying additional tax, according to Eric Clapton, managing director of chartered accountancy firm Clapton Consultants.
“The new allowances need to be absorbed into a client’s financial planning from the beginning of the tax year,” stated Mr Clapton. “With good advice it is quite possible for a couple to pay no tax on non-Isa savings of £400,000 and receive income of almost £100,000 without paying higher-rate tax.”
The launch of the Innovative Finance Isa, will allow savers to earn tax-free interest from peer-to-peer lending.
Richard Harwood, director at the Innovative Finance Isa website, said P2P lending has already provided more than £5bn of funding to smaller companies that would have struggled to borrow money from the high street banks.
Capital gains tax has been cut from 28 per cent to 20 per cent, while the CGT payable by basic-rate tax payers fell from 18 per cent to 10 per cent. The way dividends are taxed has also changed.
A dividend of £50,000 taken before 6 April will cost £12,500 in tax for a higher-rate taxpayer and £15,278 for an additional-rate taxpayer. After 6 April, a £50,000 dividend will incur a tax liability of £14,625 for a higher-rate taxpayer and £17,145 for an additional-rate taxpayer.
Paying a dividend before 6 April will accelerate by a year the date on which the tax is payable. Consideration also needs to be given to the effect on payments on account for 2015 to 2016 (and 2016 to 2017) of paying a dividend pre-year-end, especially if a claim to reduce 2015 to 2016 payments on account has already been made, according to George Bull, senior tax partner with RSM.
Last, but by no means least, the much-maligned new state pension has also gone live this month.
Someone with 35 years of full-rate national insurance contributions will now be entitled to a single state pension of £155.65 per week, or £8,093 a year.
Aegon pointed out that due to historically low interest rates and improved life expectancy, annuity rates are currently at an all-time low, meaning if someone wished to buy an equal amount from a private pension fund, a male aged 65 would need a fund of £243,000 and a female – with the current state pension age of 63 for women – would need £264,500.
The provider’s pensions director Steven Cameron stated: “With all the controversy over winners and losers and complicated transitional arrangements, people may be forgiven for not realising just how valuable a benefit it will be.”
Andrew Sheen, editor of online retirement community www.retiresavvy.co.uk, said that even with the introduction of the new state pension, most new pensioners would still need to halve their cost of living.
He said: “Although the new state pension … is more generous than the system it replaces, it is still less than half of what the average 50 to 65-year-old currently needs to live on.”
| £10,000 invested in an Isa each year for the past 10 years | Portfolio size |
| Investing on the first day of the new tax year | £133,074 |
| Investing one 12th at the start of each month | £127,930 |
| Investing on the last day of the tax year | £129,596 |
Source: Nutmeg
