Few expect a dramatic budget on Wednesday, with Philip Hammond likely to keep cash in reserve to resuscitate the economy if it tanks post-Brexit. But because chancellors have a habit of pre-announcing policies long before they happen, we already know the major changes in income tax, national insurance, tax credits and welfare benefits that come into effect on 6 April. Here we highlight the significant ones.

A budget in the shadow of Brexit leaves Hammond short of choices Read more

1 Income tax and national insurance The personal allowance will rise £500 to £11,500 for the 2017-18 tax year. That’s the amount you can earn without having to pay income tax. Above that you will pay 20% tax until your income reaches the 40% tax band, the threshold for which is earnings above £43,000, but this will rise to £45,000 from 6 April. Note that in the past, people born before April 1938 qualified for a higher age-related allowance, but this has eroded in value as the general personal allowance went up, and there is now no additional benefit.

For someone earning £25,000 a year, this means the amount of PAYE income tax paid will fall from £2,800 to £2,700. If you are on £50,000 the amount will fall more, from £9,200 to £8,700.

But income tax is just part of the “stoppages” taken from your salary: national insurance is nearly as important. Currently you pay 12% NI on all your earnings as an employee above £155 a week (or £8,060 a year) until your earnings reach £827 a week (£43,004), after which it drops to 2%.

From 6 April you will still pay 12% NI, but it won’t start until you earn £157 a week (£8,164 a year) and will run through until you earn £866 a week (£45,032). For a person earning £25,000 a year, it means NI will drop from £2,033 to £2,020, but someone on £50,000 will see their bill go up from £4,333 to £4,523.

Watch out for chancellors who claim to have lifted millions of the poorest out of paying income tax. They can safely say that because the personal allowance has indeed risen sharply. But we are in the peculiar position where lots of low earners have to pay national insurance, starting on their earnings of £8,164 and above, even though they are deemed to be too poor to pay income tax.

2 State pension This will rise by 2.5% in April, with pensioners on the new flat-rate pension seeing their weekly payments increase to £159.55 from £155.65, while the old state pension will rise to £122.30 from £119.30. The higher flat-rate is paid to those with 35 years of NI contributions, so lots of people, especially women who stayed at home to raise families, won’t get for the full amount.

Separately, probate fees will rocket on some estates from May. Currently there is a flat fee of £215, but this will be replaced with a tiered system. Those with a value of less than £50,000 will be exempt from probate fees altogether, meaning 58% of estates will have nothing to pay. But the fee will be £300 on estates of £50,000-£300,000; £1,000 for estates ranging from £300,000-£500,000; £4,000 on £500,000-£1m; then £8,000 on sums over £1m, and £20,000 on estates exceeding £2m.

3 Child benefit This will be frozen in 2017-18 at the existing rate of £20.70 a week for the first child, then £13.70 for other children. With inflation expected to rise towards 3% over the next 12 months this is a real-terms cut in the value of the benefit.

However, the number of free childcare hours for children aged three and four will double from 30 from September so long as parents work more than 16 hours a week and earn less than £100,000 a year. Note, this applies to a 38-week year (in line with school terms) rather than 52 weeks.

4 Tax credits/universal credit Virtually all the universal credit rates will be frozen for 2017-18, which means a real-terms cut once inflation is taken into account. There are important changes to child tax credit, which from 6 April will be limited to two children. But those already in receipt of CTC won’t be affected – it applies only to people who have children born on or after 6 April 2017. Another change from April is that claims for CTC won’t include a family element (worth around £10.50 a week) unless the claim covers children born before 6 April.

5 Jobseekers allowance/housing benefit Unemployment benefit is frozen again, with the rate for under-25s at £57.90 a week (£3,010 a year) and £73.10 (£3,801) for those 25 or older. This means the rates paid in March 2018 will be the same in April 2015, with no increases to take inflation into account.

The younger unemployed face a double hit, as those out of work between the ages of 18 and 21 will not be automatically entitled to housing benefit. However, there are signs of a possible U-turn on this amid fears that it would simply add to the homelessness bill.

The benefit cap – the total amount you can claim – was reduced in November from £26,000 to £23,000 in London, with a cap of £13,400 for single adult households outside London without children.

6 Buy-to-let There are big and complex changes for people with buy-to-let mortgages in April, which for some will see their tax bill double or even triple. At the moment, landlords can deduct mortgage interest and other finance-related costs from their rental income before calculating tax liability. But this interest relief is being slashed from 100% to zero, although in a phased way.

Instead, the tax on rental and other income sources will be totted up and you will be granted a “tax credit” worth 20% of the mortgage interest cost to offset against income tax, whatever rate of tax you pay. The first cut in mortgage interest relief begins in April, when it will drop from 100% to 75%. For someone with a £280,000 mortgage against a £350,000 property earning a rental income of £14,000, the tax will rise from £1,120 now to £1,610 in 2017-18, and to more than £3,000 by 2020.

7 Isas If you can afford to stash a lot of cash into an Isa then from April you are in luck, as the total tax-free limit will rise from £15,240 to £20,000.



