Allowance, Rates and Bands
There is no amendment to the proposals announce earlier with regard to allowances, tax rates and bands.
The main personal allowance increases to £10,600.
The personal allowance continues to be withdrawn progressively by £1 for every £2 that the “adjusted net income” exceeds £100,000.
The age allowance for those born before 6th April 1938 decreases to £60, meaning that their personal allowance remains at £10,660.
The tax rates remain at 20% in respect of the basic rate, 40% in respect of the higher rate, and 45% in respect of the additional rate.
The basic rate band decreases from £31,865 to £31,785 meaning that the total income at which the higher rate of 40% starts will be £42,385 (currently – £41,865).
The additional rate of 45% is payable on taxable income above £150,000.
Transferable Allowance
From April 2015 spouses and civil partners, neither of whom pays tax at the higher rate or additional rate, can transfer 10% of their personal allowance to the other partner. For 2015-16 this equates to a transferable allowance of £1,060, resulting in a tax saving of £212 where one partner is a non-taxpayer.
Dividends
Dividends continue to be treated as the top slice of income, and therefore taxed at the marginal rate. The rates at which dividend income is taxed remains at:
10% where it is within the basic rate band
32.5% where it falls into the higher rate band
37.5% where it falls into additional tax
Savings Income
The starting rate of tax for savings income is reduced from 10% to 0%. The maximum amount that qualifies for this rate is increased from £2,880 to £5,000.
The rates are not available if “taxable non-savings income” exceed the starting rate limit. It should be noted that “taxable non-savings income” excludes dividends.
Help To Buy ISAs
It is intended that these will be available from Autumn 2015. They will provide a tax free savings account for those people wishing to save for their first home. An initial deposit of £1,000 will be allowable, with further deposits restricted to £200 per month. When the savings are used towards the purchase of the first home then the government will provide a bonus of 25% on the amount saved, limited to a bonus of £3,000 on savings of £12,000.
Junior ISAs and Child Trust Fund
The annual limit increases from £4,000 to £4,080.
Future Changes
The personal allowance will increase to £10,800 in 2016-17 and £11,000 in 2017-18. The higher rate threshold will rise to £42,700 in 2016-17 and £43,300 in 2017-18.
A Personal Savings Allowance of £1,000 will be available from 2016-17. Due to this, from April 2016 basic rate tax will no longer be deducted at source from bank and building society interest.