From Inheritance Tax boosts to new tax reliefs, we can look forward to some positive financial changes in 2017.
With Brexit to get on with and a controversial new American president it may seem that there isn't much to look forward to in 2017.
However, it’s worth looking a little closer, because in amongst all the doom and gloom, there are some bright spots. In fact, if you look hard enough, there are 13 reasons to be cheerful in 2017.
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The State Pension boost
The bad news is that the Government has decided it cannot guarantee to maintain the State Pension triple lock in the next parliament.
However, there’s another way of looking at this: Hammond has pledged that the triple lock will stay in place for the rest of this parliament, and as a result the State Pension will be rising in April 2017 - so that weekly payments increase from £119.30/£155.65 to £122.30/£159.55.
Final salary pension scheme recovery
The Brexit vote has led to some dramatic falls in the UK bond market. This isn’t great news for bond investors, but has a hidden benefit for members of final salary occupational pension schemes.
[SPOTLIGHT]When bond prices fall, the bond yield automatically rises, and because the way final salary pension schemes are valued depends to an enormous extent on bond yields, it automatically starts to close the black hole in many schemes.
Tom McPhail, Head of Retirement Policy at Hargreaves Lansdown, highlights that while a minority of predominantly smaller schemes may never recover, “ The majority of schemes are likely to return to being fully funded in time and members will get the pensions they have been promised.”
Inflation boosting borrowers
Anyone with a large chunk of debt - such as a mortgage - will benefit from inflation in 2017, because over time, higher inflation will eat away at the real value of the debt.
If, for example, you borrowed £22,676 to buy an average house in the 1980s, it would have represented almost four times the average salary. However, inflation in the interim means that if you carried that same debt today, it would represent less than a year’s average salary.
... and the Government
Given that inflation eats away debt, as long as it doesn’t get out of hand, inflation will be good news for the Government, because it will nibble away at the real value of the National Debt.
At the same time, modest inflation tends to lead to increases in the tax take - which will make a pleasant change for the Treasury.
FTSE boom
The collapse of the pound has been a boon for FTSE 100 companies, many of which earn their income in other currencies, and then convert them into pounds in order to express their profits. The more the pound falls, the more their profits appear to grow.
This in turn encourages investors and pushes up the share price. Anyone invested in the FTSE 100 might be pleased to hear the woes of the pound are not yet over, and so there could be more gains to come from currency movements alone.
The new savings bond
It’s not worth trying to sugar-coat this: if you have money in a standard savings account, the low levels of interest available mean higher inflation is likely to eat into the value of your savings in 2017.
However, one silver lining to this cloud is that it has prompted the Government to announce a new savings bond.
More details will be available in the March Budget in 2017, but the bond will be available through NS&I, and is expected to offer 2.2% over three years - for up to £3,000.
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Pay rise for millions
The plan to raise the minimum wage for people over the age of 25 to £9 in 2020 is still in place, so April 2017 will see an above-inflation rise to £7.50 an hour.
£56 boost for basic rate taxpayers
The personal tax allowance has been rising since 2010, which has already had a significant effect on the amount of tax we pay - and Philip Hammond has confirmed it will continue to rise until it hits £12,500 by the end of this parliament. In April 2017 it will rise from £11,000 to £11,500.
This, the Government calculates, will benefit basic rate taxpayers by an average of £56, and another 424,000 people will stop paying Income Tax altogether.
£233 boost for higher rate taxpayers
In April, the 40% income tax threshold will rise to £45,000 from £43,000 now. This will benefit 4.5 million higher rate taxpayers - who stand to gain an average of £233, and will take 359,000 more people out of the higher rate tax band.
Tax relief on personal pensions
One of the big surprises of 2016 was something that didn’t happen. Both George Osborne and Philip Hammond chose not to change the system of tax relief on personal pensions – at least not yet.
This had been widely predicted as early as March 2016, and while theories to how it might change had varied, the experts agree that it will mean less tax relief for higher rate taxpayers.
This, therefore, has presented those in the higher rate tax bands with a window of opportunity, because at least for the first few months of 2017, they will be able to take advantage of generous tax reliefs on pension contributions.
It may mean for some people, it’s worth prioritising contributions in early 2017 to make the most of it.
Tax relief for side projects
There’s a new tax relief being introduced in April 2017, which means you will be able to earn £1,000 from side projects, without being subject to tax.
This means you can do anything from selling on eBay or car booting, to babysitting or dog walking, and as long as you make less than £1,000 a year from it, you can keep the lot.
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Another way to earn money from your home
You already get a tax allowance if you rent out a room, but from April 2017, the Government is also introducing another tax relief, which will allow you to earn another £1,000 from your home without being subject to tax.
This means you could do anything from renting space in your loft to letting out the driveway, and as long as you make under £1,000 you won’t pay tax on it.
Check out our guide to making the most of this new allowance: Sharing economy: how to make money from your home.
Changes to the most-hated UK tax
The changes to Inheritance Tax (IHT) announced in 2015 will finally start to take effect from April 2017.
As long as your estate includes the family home (and your estate isn’t worth more than £2 million), the total IHT threshold will rise from £325,000 to £425,000 (or £800,000 for married couples or those with civil partners) - on its way to hit £500,000 ( or £1 million for couples) by 2020.
It means that many married couples and civil partners will eventually be able to leave each other their estate and roll up their tax relief, and thereby pass on £1 million - including the family home - to their children or grandchildren free of IHT.
Read more about this change in our guide: How to cut your Inheritance Tax bill.
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