How to save money in 2016
Overspent at Christmas, need to sort your finances out? Then your friendly taxman has produced ten tips on how to achieve your goals in 2016.
1. Help to Buy: ISA
For those saving to buy their first home, up to £200 per month can be invested in a Help to Buy: ISA and the government will top it up by 25%, up to a maximum of £3,000.
An investment of £3,400 will achieve a bonus of £850 at the end of the year (save £1,200 in January and £200 p.m thereafter).
This type of ISA can be taken out with one of 14 providers and further information can be found at www.helptobuy.gov.uk/help-to-buy-isa/providers-in-the-scheme.
2. Switching bank accounts can save an average of £70 per year
Switching your current account is much easier and quicker nowadays, with direct debits and standing orders transferred automatically. A switch guarantee ensures protection against financial loss if anything goes wrong during the handover.
Since 2013, over 2.25 million people have made switches and it’s also available to 99% of small businesses.
3. Managing your pension
For those aged 55 and above, since 6th April 2015 pension reforms mean that they can access their savings from their defined contributions pension scheme to invest or spend as they see fit.
Money can be taken direct from a pension pot without having to purchase an annuity or put the money into drawdown, and 25% of this will be tax free. Alternatively, some of the funds can be used to buy an annuity that will be payable for at least the rest of a person’s life.
More guidance can be found by visiting Pension Wise www.pensionwise.gov.uk.
4. Help to buy
For those wanting to purchase a new build home the Help to Buy: Equity Loan scheme maybe attractive. In return for at least a 5% deposit, the government will lend up to 20% of the rest of the value of the property, alongside a mortgage of up to 75%.
To reflect current property prices in London, those buying in Greater London will soon be able to benefit from up to a 40% loan.
Alternatively, from April 2016, for those with a household income of less than £80,000 outside London, and £90,000 inside London, Help to Buy Shared Ownership will allow them to buy a share of between 25% and 75% of a home.
The rent on the rest of the property won’t be more than 3% of the amount left and the scheme will apply across England.
Further information can be found at www.helptobuy.gov.uk/equity-loan/equity-loans.
5. Married couples allowance
Married couples could save themselves £212 in tax this tax year by applying for the marriage allowance. The marriage allowance enables a spouse with income of £10,600 or less to transfer £1,060 of their personal allowance to their partner who must not be paying tax at the higher rates.
Visit www.gov.uk/marriage-allowance-guide/how-it-works for more information including how to apply for it.
6. Shop around for the best deal on current accounts
The Midata tool on GoCompare allows you to compare current accounts to find the best one for you, based on how you actually use your bank account.
The service was set up in April 2015 to help people get easy access to their data to enable them to make choices about how they bank.
Currently, the service can be used by those who bank with HSBC, Lloyds, RBS, Barclays, Nationwide, Santander and Tesco Bank. The Midata file can be downloaded via internet banking.
7. ISA freedom
ISAs are being reformed so that instead of being able to put up to £15,240 in this tax year into an ISA in total, you can withdraw money and put it back within the same year, without losing your ISA tax benefits provided that the withdrawal and repayment are both made in the same tax year.
8. Simpler mortgage access
Which? and the Council of Mortgage Lenders have standardised and simplified mortgage fees, so that the fees charged when someone takes a mortgage out are clearer.
Lenders have committed to use the same names for fees, so that it is only necessary to understand the different types of fee rather than the different names.
All fees will have the same descriptions, listed in the same order, so when choosing the right mortgage it will make comparing easier.
9. Personal Savings Allowance
From 6th April 2016, a tax-free allowance of £1,000 (or £500 for higher rate taxpayers) will be introduced for the interest earned on savings. HMRC estimate that this will remove 95% of taxpayers from paying tax on their savings.
A basic rate taxpayer with a total income of up to £43,000 in 2016/17 will be eligible for a £1,000 tax-free savings allowance, whereas a higher rate taxpayer with total income between £43,001 – 150,000 will be eligible for a £500 allowance.
10. Increase in Personal Allowance
The tax-free Personal Allowance is to be increased from £10,600 to £11,000 from 6th April 2016, making a typical taxpayer £80 better off.
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