Over the past year, there have been a number of changes to the way you can manage your personal finances. This means that everything you do can be carried out in a far more efficient and transparent way, meaning your savings can be improved dramatically. In the UK, 2016 saw the state pension system overhauled, a new regime for taxes on savings and dividends, and the opportunity to do almost all of your personal finance chores online in order to boost convenience. With this in mind, we’re taking a look at some of the biggest and some of the best modern day changes that we have seen to personal finances over the past yearTax ReturnsDigital Tax Returns
In 2015, we saw a trial of digital personal tax accounts which was tested by wealthy taxpayers who benefited from multiple income sources. In 2016, we saw this become a far more widespread option, meaning people can keep a closer eye and become more efficient when it comes to managing their tax returns. In some cases, people may be required to update their details four times a year, in order to ensure that all of their information is correctly passed to HMRC by their banks and building societies to help reduce tax fraud, or simple mistakes in managing your taxes. It is expected that everyone who currently carries out a self-assessment tax return will be using this new system by 2020.
Introduction Of Personal Savings Allowance
From April 6 2016, savers began to receive a personal savings allowance, meaning they can save on the tax that they pay on their interest earnings in things like current accounts, fixed-term bonds and other saving products. This rate used to be based on their income tax bracket, but this new allowance allows savers to earn tax-free interest up to a certain amount before they have to pay. This is set so basic-rate taxpayers are tax-free up to £1000 and higher-rate taxpayers have a limit of £500. This is expected to mean that up to 95% of people will no longer be required to pay a tax on their savings.
Innovative Finance ISA
Peer-to-peer loans are on the rise, and a new type of ISA was introduced in the 2016-17 tax year. This allows tax-free investment when it comes to peer-to-peer lenders. While the return that you receive from this innovative finance ISA will depend on a number of factors such as the level of defaults and the marketplace for both peer-to-peer loans and also the competitive payday loans market which could provide some competition. Investments in peer-to-peer lending however, will count against your overall ISA allowance, which is currently set at £15,240.
New Dividend Taxation Regime
When it comes to the tax on dividends from shares, the process was a little confusing. A 10% tax was originally applied to dividends, but it is also subject to a 10% tax credit which cancels out the tax. This led to basic-rate taxpayers paying no tax, and higher rate payers paying 25%, and then additional-rate taxpayers paying 30.6% tax! As of April 2016 however, this was completely scrapped, for the better, in order to bring in a much less complex new dividend taxation regime. Now, everyone will be able to earn £5000 of dividend income, without paying tax, basic-rate taxpayers pay 7.5%, higher-rate taxpayers then pay 32.5% and additional-rate taxpayers pay 38.1%.
