The main provisions relating to our clients are:
Personal Allowances and Tax Rates
The personal allowance increases from 5th April 2016 from £10,600 (£10,660 if born before 6th April 1938) to £11,000. Therefore, the age of the “Age Allowance” is over. The allowance is reduced by £1 for every £2 by which adjusted net income exceeds £100,000.
A Married Couples Allowance of £8,355 is available to couples where either partner is born before 6th April 1935. Relief is restricted to 10% and the allowance is reduced by £1 for every £2 that adjusted net income exceeds £27,700.
The basic rate of tax remains at 20% but the income to which it is applied increases to £32,000 from £31,785. The higher rate remains at 40%, and the additional rate for income over £150,000 remains at 45%.
Transferable Tax Allowance
Married couples or civil partners can transfer allowance from a low earner to the higher earner, provided that the higher earner is a basic rate taxpayer. The amount transferable increased on 6th April 2016 from £1,060 to £1,100.
Taxation of Dividends
The taxation of dividends received after 6th April 2016 changes substantially. Each person is entitled to receive dividends of £5,000 free of tax. Dividends above that amount will be subject to tax as follows:
- Income taxable at Basic Rate……………7.5% (previously Nil)
- Income taxable at Higher Rate…………32.5% (previously 25%)
- Income taxable at Additional Rate……38.1% (previously 30.6%)
Taxation of Savings Income
All interest from 5th April 2016 will be paid without the deduction of tax. However, the first £1,000 of interest will be tax-free (£500 for higher rate taxpayers). Thereafter, tax will be payable at the taxpayer’s marginal rate. If non-savings income is below £5,000 then the first £5,000 of savings income is taxed at 0%.
Micro-Entrepreneurs
Two new £1,000 allowances will be introduced from 5th April 2017 in respect of both property income and trading income. If total property or trading income is below the allowance then they will not need to declare the income or pay tax on it. If total income exceeds the allowance then they will have the option to pay tax on total income less the allowance rather than calculating the exact deductible expenses.
Individual Savings Account
The new limit for 2016/17 is £15,240, and £4,080 for Junior ISAs.
From 5th April 2017 people under 40 can open a new Lifetime ISA. They will be able to save up to £4,000 each year, and receive a 25% bonus from the Government up to the age of 50. The funds can be used to buy a first home or, after the age of 60, withdrawn tax free. The cash can be withdrawn at any time but the bonus will be lost and a 5% charge will be payable.