Life
    Money

    New year, new opportunities

    4 March 2017

     The new tax year is just a month away and changes are coming that will affect your personal finances. Some could save you money, others could cost you much more. Here’s a round-up of what to expect in 2017/18.

    Your personal allowance is rising

     
    The amount you can earn each year before income tax becomes payable rises from £11,000 to £11,500 on 6 April 2017. Philip Hammond is sticking to his predecessor’s commitment to increase this to £12,500 by 2020. Thereafter it will rise in line with the Consumer Prices Index, as the higher-rate threshold does. The Treasury says that increases since 2010 mean a typical basic-rate taxpayer will pay £1,005 less in income tax in 2017/18 than in 2010/11.

    So is the higher-rate threshold

     
    The amount you can earn before having to pay ‘higher rate’ 40 per cent income tax increases from £43,000 to £45,000. Hammond is promising to honour Osborne’s commitment to raise it to £50,000 by 2020. Overall, the new Chancellor claims 31 million people will see their income tax bill reduced in 2017/18 compared with 2015/16.

    Isa allowance goesup to £20,000

     
    The annual amount savers and investors can put into Individual Savings Accounts will rise to £20,000 on 6 April, up from £15,240. Isas enable interest and capital gains to be taken tax-free. There have been huge changes in the Isa universe in recent years, as new products join the original cash and stocks-and-shares Isas. For example, the current tax year saw the launch of the innovative finance Isa, which allows investors to shield some peer-to-peer loan interest from tax. And the new year sees the launch of the Lifetime Isa, which allows those under 40 to save up to £4,000 a year until they turn 50 and receive a 25 per cent bonus from the government, so long as they put the money towards house-purchase or retirement.

    NS&I 2.2 per cent bond

     
    National Savings & Investments is to launch a ‘market-leading’ three-year Investment Guaranteed Growth Bond that will pay an indicative 2.2 per cent — the Treasury says the rate could change before the launch, to reflect market conditions. The new bond is expected to become available this spring for a period of 12 months, to those aged 16 and above wishing to stash away between £100 and £3,000.

    Tax hike for new car buyers

     
    Anyone buying a new car on or after 1 April 2017 faces a hefty tax bill. This is because Vehicle Excise Duty is changing, and hundreds of thousands of cars that were previously exempt will now incur charges.

    The new system is based on CO2 emissions. Drivers of fully electric cars won’t pay, but all other vehicles will be charged at a rate commensurate with their emissions, with a one-off charge from £10 to £2,000 in the first year of ownership. According to buyacar.co.uk, the average emission for new cars last year was 121.4g/km CO2: under the current system they incur VED at just £30 a year. But cars with the same level of emissions bought from April will incur a one-off charge of £160 and an annual charge of £140 thereafter.

    The new system will also heap pain on anyone buying a new car with a list price of £40,000 or more. From the second year of ownership, they will be hit with an extra annual charge of £310 for five years, meaning they will pay VED of £450 in years two to six, reverting to a standard rate of £140 thereafter. The buyacar.co.uk website warns that the charge still applies even if you get a new-car discount that brings the cost of your car to less than the full listed £40,000.

    Salary sacrifice clampdown

     
    Workers receiving benefits in kind from employers, such as gym membership, a mobile phone contract or car parking, will lose the tax benefits from April. The government is clamping down on ‘salary sacrifice’ schemes, which let workers reduce taxable pay (and employers save on National Insurance contributions) by taking benefits instead.

    Effectively, employees swapping salary for benefits will pay the same tax as workers who buy these items out of post-tax income. Non-cash perks such as pensions, child care, the Cycle to Work scheme and ultra-low-emission cars are excluded from the crackdown. Salary sacrifice contracts in place before this April will be protected until April 2018, and arrangements for cars, accommodation and school fees will be protected until April 2021.

    Allowances for property and trading income

     
    The 2016 Budget included new income-tax allowances of £1,000 each for trading and property income. This will benefit private investors as well as homeowners letting their property via websites such as Airbnb. Anyone with trading or property income below the level of the allowance will no longer need to declare it or pay tax on it through self-assessment; where gross receipts exceed these amounts, the recipient can simply take the £1,000 allowance as a deduction against gross income.

    The National Living Wage is rising too

     
    For workers aged 25 and over, the minimum wage rises from £7.20 an hour to £7.50 from 1 April. This will give more than a million workers a rise, according to the Office for Budgetary Responsibility. Lower NLW age bands also receive a rise.

    Tom Stevenson’s Stocks-and-shares Isa fund tips for 2017/18

     
    We asked Tom Stevenson, investment director for personal investing at Fidelity, which are the best Isa funds to take advantage of everything that’s in store for 2017.

    Rathbone Global Opportunities

     
    James Thomson’s Rathbone Global Opportunities Fund is more defensive than I might choose ahead of an expected reflationary boom, deliberately avoiding cyclical sectors like commodities. But it is the kind of reliable, well-managed portfolio I’ll be happy to hold if, as I expect, equities outshine bonds in 2017. It may not shoot the lights out, but it’s the kind of fund to buy and forget.

    Old Mutual North American Equity

     
    Old Mutual’s North American Equity Fund is managed by a team headed by Ian Heslop, who combine mathematical modelling with lots of data and computing power to get an early grasp of changes in market sentiment. It sounds technical, but the track record in recent years suggests that this numbers-based method works in a market where finding an edge is traditionally difficult. A combination of infrastructure spending, tax cuts and repatriation of money from offshore by American companies provide a positive backdrop for the US market.

    Fidelity Special Situations

     
    Alex Wright has proved to be a worthy successor to Anthony Bolton, the original manager of ‘Special Sits’. Like his predecessor, Wright is a true contrarian, unafraid to buy shares that other investors are shunning. The rotation out of ‘expensive defensives’ into the more economically exposed value shares he favours began even before the EU referendum. But the new world of fiscal stimulus promises to provide a boost to out-of-favour corners of the economy and a tailwind for banks — a big slice of the Special Situations portfolio. Wright believes the market is slow to spot change in unloved companies — but when it does recognise that things are getting better, the re-rating of out-of-favour shares can be dramatic.

    Schroder Tokyo (Hedged)

     
    Schroder’s Japanese fund is run by old Japan hand Andrew Rose. I’ve highlighted this fund because I expect rising interest rates in America to give the dollar a boost against its main trading partners’ currencies. A weak yen is good news for Japan’s big exporters, and I expect this theme to play out throughout 2017.