It was Budget day on March 18 and today, in this column, I will summarise some of the tax changes and how they affect individuals.
Personal allowance is the amount that we can earn before being taxed.
For those of us born after April 5, 1938, we can earn £10,600 in the next tax year before paying tax.
For those of you born before April 6, 1938, this is slightly higher – £10,660 –which is unchanged from last year.
High earners with income over £100,000 start to lose their tax free personal allowance. For every £2 over £100,000 you lose £1 in personal allowance.
The effect of this is a sliding removal of the allowance. Those who earn £121,200 have no personal allowance.
The rate at which we pay tax is unchanged but the bands have shifted slightly. We pay the basic rate tax of 20% on our basic band of income.
The basic band of income is the £31,785 of income after the tax free personal allowance amount.
For earnings after this basic band of income, the higher rate tax of 40% is paid up to earnings of £150,000. Income above £150,000 is taxed at the additional rate of 45%.
Dividends remain unchanged – these are taxed at three rates, depending where they fall in your income total.
If your dividend income is in your basic band they are taxed at 10%.
If they are in the higher rate band they are taxed at 32.5% and if they are in your additional band of income you would pay 37.5%.
New for the tax year from April 6, 2016, is a new personal savings allowance. This is a tax free allowance on savings interest.
This allows us to have the first £1,000 of savings income to be tax free if this falls in our basic rate band.
If your savings income falls in your higher rate band of income you can earn £500 tax free.
To support this, when you are paid interest you will receive this gross and not net of tax. The 20% you normally pay in tax will not be deducted. Again this is from April 6, 2016.
Married couples and civil partners have flexibility to move 10% of the standard personal allowance to their partner.
This would allow £1,060 to be moved – giving tax relief of up to £212. To be allowed neither of you can be higher rate or additional rate tax payers.
This is a brief summary and there haven’t been many changes, but please contact us if you would like to discuss any of this further.