Income Tax & Personal Savings
| Income tax | 2016/17 | 2015/16 |
|---|---|---|
| Basic rate band – income up to | £32,000 | £31,785 |
| Starting rate for savings income | *0% | *0% |
| Basic rate | 20% | 20% |
| Dividend ordinary rate | **7.5% | 0% |
| Higher rate - income over | £32,000 | £31,785 |
| Higher rate | 40% | 40% |
| Dividend upper rate | **32.5% | 25% |
| Additional rate – income over | £150,000 | £150,000 |
| Additional rate | 45% | 45% |
| Dividend additional rate | **38.1% | 30.6% |
| Savings rate limit (savings income) | *£5,000 | *£5,000 |
| For 2016/17 Scottish taxpayers effectively subject to the same income tax rates as rest of UK. *If an individual's taxable non-savings income exceeds the starting rate limit, then the starting rate limit for savings will not be available for savings income. For 2016/17, £1,000 of savings income for basic rate taxpayers (£500 for higher rate) may be tax-free. **For 2016/17 the first £5,000 of dividends are tax-free. | ||
The Government has announced an increase in the basic rate limit for the 2017/18 tax year from £32,400 to £33,500. As a result, the higher rate threshold will be £45,000 in 2017/18.
| Personal allowances (PA) | 2016/17 | 2015/16 |
|---|---|---|
| Born after 5 April 1938 | £11,000 | £10,600 |
| Born before 6 April 1938 | *£11,000 | *£10,660 |
| Married couple's allowance (MCA) (relief 10%) | 2016/17 | 2015/16 |
| Either partner born before 6 April 1935 (relief restricted to 10%) | *£8,355 | *£8,355 |
| Transferable Tax Allowance ('Marriage Allowance') | 2016/17 | 2015/16 |
| For certain married couples and civil partners (relief restricted to 20%) | £1,100 | £1,060 |
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* Allowances are reduced by £1 for every £2 that adjusted net income exceeds £27,700 to a minimum PA of £11,000 (£10,600) and to a minimum MCA of £3,220. Where adjusted net income exceeds £100,000, PA is reduced in the same way until it is nil. |
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The Government has committed to raise the PA to £12,500 by the end of this Parliament, and to increase it to £11,500 for 2017/18.
| Tax Shelters | 2016/17 | 2015/16 |
|---|---|---|
| Venture Capital Trust up to | £200,000 | £200,000 |
| Enterprise Investment Scheme up to | £1,000,000 | £1,000,000 |
| Seed Enterprise Investment Scheme up to | £100,000 | £100,000 |
| Social Investment Tax Relief up to | £1,000,000 | £1,000,000 |
Micro-entrepreneurs
From April 2017, the Budget introduces two new £1,000 allowances for property and trading income.
Individuals with property income or trading income below the level of allowance will no longer need to declare or pay tax on that income.
Those with relevant incomes above £1,000 can benefit by simply deducting the allowance instead of calculating their exact expenses.
Individual Savings Accounts (ISAs)
2016/17 limits:
| Overall investment limit | £15,240 |
| Junior ISA and Child Trust Fund limit | £4,080 |
With effect from 6 April 2017, the ISA annual allowance will increase from £15,240 to £20,000.
The Government will legislate to allow the ISA savings of a deceased person to continue to benefit from tax advantages during the administration of their estate and will set out further plans for introducing this measure in 2016.
Lifetime ISA
From 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the Government for every pound they put in, up to the age of 50.
Funds can be used to save for a first home or for retirement. Features include:
- both the savings and Government bonus can be used towards a deposit on a first home, worth up to £450,000
- accounts are limited to one per person rather than one per home – so two first-time buyers can both receive a bonus when buying together
- during the 2017/18 tax year, those that have a Help to Buy: ISA can transfer the savings into the Lifetime ISA, or continue saving into both, but will only be able to use the bonus from one to buy a house
- after their 60th birthday savers can withdraw the savings, tax-free
- savers can withdraw money at any time before their 60th birthday for any purpose, but the Government bonus, together with any interest or growth thereon will be lost. A 5% charge will also be payable.
Pensions
The Government will increase the existing £150 income tax and national insurance relief for employer arranged pension advice to £500.
Where a serious ill-health lump sum is paid to an individual who has reached age 75, it will be taxable at that individual’s marginal rate rather than at a flat rate of 45%.
A change is to be made to align the tax treatment of a charity lump sum death benefit after a member has died under the age of 75, whether paid out of drawdown pension funds and flexi-access drawdown funds or out of funds that have not been accessed (uncrystallised funds).
The Scottish rate of income tax (SRIT)
Under the Scotland Act 2012, with effect from 6 April 2016 the Scottish Parliament has the power to set a separate annual rate of income tax for Scottish taxpayers. The new regime means that taxpayers who are deemed to be resident in Scotland will effectively pay two types of income tax on their non-savings income, with the main UK rates of income tax being reduced by 10p for Scottish taxpayers, and the Scottish Parliament levying the SRIT in its place.
In its draft Budget in December 2015, the Scottish government announced that the new SRIT will be set at 10p in the pound for 2016/17. However, while the overall rates of tax paid by Scottish taxpayers remain unchanged for the coming year, the new rules will affect many employers and employees. Any employer in the UK, even those based outside Scotland, will see a change to PAYE procedures if a single one of their employees is classed as a Scottish taxpayer for the purposes of SRIT.
A new ‘S’ prefix will be added to the tax code of Scottish taxpayers, and payroll software will need to apply the correct rates of SRIT. However, employers should not use an ‘S’ tax code until advised to do so by HMRC. There is no requirement to identify the SRIT proportion of tax on the P60, but the P60 should show a Scottish tax code where relevant.