New tax year: Ten things you need to know

With a host of new allowances and major changes to the rules in a range of areas from the state pension to taxation of dividends to get your head around, here is a handy guide to the ten things you need to know about the new tax year.

Savings allowance

Workers being paid less than £150,000 are now able to earn a wedge of tax-free income from savings. Anyone earning up to £17,000 in total across their wages and savings will not pay any income tax at all, while those paying basic rate will be able to earn up to £1,000 from their savings before they're hit, dropping to £500 for higher rate taxpayers. Additional rate taxpayers will not benefit at all.

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For those who pay 20 per cent tax on their earnings, at the current savings account best-buy rate of around 1.3 per cent, they will be able to hold £75,000 without paying any tax, according to Sky News.

To some extent, the measures reduce the appeal of Isas, but it's still worth using fully tax-free accounts for those who want to stash a fair amount away for the long-term – and money put in an Isa doesn't count towards the new allowance.

Isas

While we're on the subject, there's a new addition to the family in the form of the Integrated Finance Isa, which can be used for peer-to-peer loan investments. The total amount that can be placed into the regime this year is unchanged at £15,240, which can be split however you'd like across peer-to-peer, cash or stocks and shares accounts.

Other allowances

Income tax thresholds have changed again this year, with everyone now getting the first £11,000 of their earnings tax free while you can now earn up to £43,000, up from £42,385, before paying the higher rate of 40 per cent.

The allowance for the amount you can earn tax free from renting out a room in your home has also doubled to £7,500.

State pension

Today is the first day of the new "flat-rate" state pension system. Anyone retiring from today will receive £155.65 a week if they've made the upper threshold of 35 years' national insurance contributions, which is a modest increase for three-quarters of retirees of around £7 on the average they would have received previously, says The Guardian.

This replaces the two-tier system currently in place and the "second state pension" is being abolished. Those who contracted out of what is effectively a top-up to their basic state pension because they have a generous company pension, reducing their NI bill in the process, will have to pay up to £37 more from their wages each month, but will get a higher pension from the state.

Longer term, there will be more marginal losers than winners, the Guardian reckons, because the minimum threshold to qualify for any pension is rising from one year to ten.

Lifetime allowance

Elsewhere in the world of pensions, the amount you can save over your lifetime is falling from £1.25m to £1m. While the calculation is simple for those with a money purchase pension, for those in final salary schemes, the way the fund size is estimated means workers earning more than £43,500 a year could breach the limit, claims the Guardian.

Buy-to-let

The tax clampdown on private landlords starts today. The generous ten per cent wear-and-tear allowance, paid regardless of the costs – if any – an investor incurred during the year, has been abolished. Now landlords will have to claim back for the actual amount they've spent as a business expense, which the government reckons will result in it keeping £205m more tax a year.

In the coming years, buy-to-let owners are going to lose at least half of their tax relief on mortgage interest payments, too.

Capital gains tax

As announced at the last Budget in March, investors are getting another major tax break from today in the form of an eight per cent reduction in capital gains taxes. Those in the higher rate bracket will pay 20 per cent, down from 28 per cent, while basic rate taxpayers will pay ten per cent, down from 18 per cent.

In another snub to landlords, property investors have been explicitly excluded from this provision. The eight per cent differential is already being referred to as the buy-to-let capital gains "surcharge".

Dividends

On the other side of the equation for investors, the Treasury is going to be taking an extra £9bn in taxes on dividends over the next five years after an overhaul in the way payouts are charged, reports the Daily Telegraph. The previous ten per cent credit has being scrapped and the tax rate is rising by 7.5 per cent, hitting above 38 per cent for the highest earners.

There will be a new allowance of £5,000, which the government reckons will mean most low earners with investments will actually pay less tax. Those with a lot of shares could be paying more, however, and combined with the capital gains changes, it creates incentives to shift your portfolio into growth stocks.

Residence rules

From today, non-EU nationals who have been in the country for less than ten and want to apply for permanent residence will need to earn at least £35,000. At the moment, the test is only five years' residence and there is no income limit.

Scotland income taxes

Scotland can now vary its income taxes by ten per cent relative to wider UK rates, but must do so equally across all bands – which is the reason the government north of the border has pledged not to use its powers. From next year, under the post-referendum settlement, the Holyrood parliament will get almost full control. Current First Minister Nicola Sturgeon has pledged to reverse the 40 per cent tax band cut.