How Will Your Tax Change On The 6th of April 2016

March 30 2016, 0 Comments

With the new tax year almost upon us, we take a look at the new alterations that you need be aware of going into the new financial year.

Personal Allowance

Simply put, personal allowance is the total income you can earn before you have to pay income tax.

Under the new governing laws, 2016-17 will seen an increase in the amount you’re allowed. The tax-free personal allowance is due to rise from £10,600 for 2015-16 to £11,000 for 2016-17. 

It is important to note that as of the 6th, there will be no extra allowance for taxpayers aged over the state pension age. Previously, this age-related allowance increased the tax-free allowance for pensioners who only earned low income, however this will now end. 

Also, there will be no personal allowance once your own income exceeds the £122,000 mark.

Isa Allowance

During 2015 there was an increase to £15,240 in the Individual savings account (Isa) allowance. This Isa limit has been frozen and it will remain at the same amount for 2016-17.

Below, are the amounts you can save in these products tax-free:

  • The Isa limit = £15,240
  • The Child Trust Fund limit = £4,080
  • The Junior Isa limit = £4,080

Personal Savings Allowance

In 2016-17, the new personal savings allowance - for those who are in the 20% band for income tax – will allow you to pay no tax on the first £1,000 of interest you make from your savings. If you earn more than £1,000 in interest, you'll have to pay tax through self-assessment (if applicable) or through an adjustment in your PAYE tax code.

For the taxpayer who resides in the 40% bracket, you will be allowed £500 of interest tax-free on what you earn, rather than the £1,000 for the individuals mentioned above.

Please note, this new allowance is a separate entity from the Isa limit discussed in the section above. This will mean that you will receive up to £1,000 of tax-free interest from normal accounts you have as well as any interest that you receive from a cash Isa.

NI Thresholds

The standard NI (National Insurance) rates remain unchanged, however as of April 6th 2016, 'contracting out' will come to a halt, meaning employees who previously qualified for a reduced rate will see the following increase:

  • Class 1 National Insurance (employees) is payable on income between £8,060 and £43,000 at 12%. Above £43,000 the reduced rate of 2% applies.
  • Class 2 National Insurance (self-employed) is payable on income above £5,965 at £2.80 per week
  • Class 4 National Insurance (self-employed) is payable on income between £8,060 and £43,000 at 9%. Above £43,000 the reduced rate of 2% applies. 

Income Tax Thresholds

In regards to income tax, there is no change in this year’s tax rates, meaning the basic rate tax will remain at 20%, the higher rate at 40% and finally, the additional tax rate at 45%. 

  • The basic rate = Income after personal allowance that is below £32,000 (currently £31,785)
  • Higher rate = Income between £32,001 and £150,000 (currently £31,786 and £150,000)
  • Additional rate = Over £150,000 (unchanged from 2015-16).

Dividend Allowance

As of April, the first £5,000 you receive in dividends from investments will be tax-free.

For anything above that number, taxpayers will pay the following in regards tax on dividends: 

  • Basic rate taxpayers = 7.5%
  • Higher rate taxpayers = 32.5%
  • Additional rate taxpayers = 38.1%

Marriage Allowance

Married couples and civil partners will be able to transfer £1,100 of personal allowance from the lower-earning partner to the higher earner. This will save them up to £220 tax, an increase from £1,060 in 2015-16. 

Stamp Duty Amounts

On top of the normal rate, landlords and secondary home owners will have to pay an additional 3% in stamp duty for second properties bought after the 1st of April, 2016. This is a 3% supplement charge on the entire value of the additional property. 

Capital Gains & Inheritance Tax

Rates for capital gains tax - which you pay on considerable profits from assets and possessions sales - will drop to 10% for basic rate taxpayers and 20% for higher rate taxpayers in 2016-17. Residential property rates as well as the overall capital gains tax allowance remains unchanged.

The tax rules on inheritance tax also stay untouched in 2016-17, with the tax-free amount of £325,000 remaining the same, with a tax rate of 40% above that level.

Parting Note

Hopefully this post has given you a clearer picture on the up and coming changes. Bare in mind that the issue of tax is always a confusing time so make sure you seek assistance if you’re unsure on any areas. Be sure to keep accurate records throughout the financial year and as always, you can take advantage of our bookkeeping software to manage your accounts more efficiently.

*All articles are correct at the time of publication. Please see this link for more information regarding current VAT, Tax and MTD requirements with HMRC. It’s always advisable to check legislations and obligations with the relevant governing body.