Financial planning: get ready for 2016

The new year will be marked by many changes that could affect your personal finances. 

The first year after a general election is often the time when major reforms take effect, especially those which create losers as well as winners. 2016 will be no exception. 

State pensions

6 April will see the new single-tier state pension start. Its initial level will be £151.25 a week (in 2015/16 terms), but complex transitional measures mean that only 37% of those reaching State pension age in 2016/17 will receive the full single-tier pension. By 2035 the proportion will rise to 80%. 

Support for mortgage interest (SMI)

SMI meets interest costs on mortgages of up to £200,000 if you claim certain benefits (e.g. income-related Employment Support Allowance during illness). At present SMI is payable following a 13-week waiting period after an appropriate benefit claim has started. From 1 April 2016 that period will revert to its pre-recession timescale of 39 weeks and two years later the basis of the system will change from a government payment to government loan. 

Pension tax changes

There are cuts to the two main pension tax allowances due on 6 April 2016, assuming that something more dramatic does not happen to the pension tax rules in the Autumn Statement on 25 November 2015. The lifetime allowance will be cut a third time, bringing it down to £1m. At current annuity rates that would buy a 65-year old an inflation-proofed pension of no more than about £2,750 a month (before tax). The new rules for phasing down the annual allowance for high earners to a minimum of £10,000 will start at the same time. 

It will be possible to claim transitional protection from the lifetime allowance cut, but the final details will not emerge until after the reduction has occurred. 

Please contact us now for advice on how these changes, plus the reforms to the taxation of dividends and interest, could affect you and the actions you should be considering now. 

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. 

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