Taxation 2017-2018

Technical material for your study purposes.

Taxation 2017/18 

Personal Allowances

  • Everyone is allowed to have £11,500 of their income without paying tax.
  • The personal allowance is reduced to zero for any person earning over £100,000 P/A, this applies at any age (this is reduced by £1 for every £2 over £100,000).
  • Marriage allowance: £1,150 transferable allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance. A spouse/civil partner who is a NTP can transfer 10% of their personal allowance (£1,150) to their BRT payer spouse or civil partner. Does not apply if partner a HRT or ART payer. This must be applied for.
  • Married couples allowance: Maximum allowance £844.50 to minimum allowance £326. Must be married and one must have been born before 1935. If married after 5th December 2005 the highest earner can claim. Means tested.
  • Blind persons allowance an extra £2,320 on top of the basic allowance. It can be transferred to spouse if unused.

Certain deductions can be taken from income before the personal allowance is applied:

  • Pension contributions (employed and self-employed)
  • Allowable expenses:
    • Self-employed: must be ‘wholly + exclusively for the purpose of trade’
    • Employed: must be ‘wholly, exclusively + necessarily’ while doing the job. 

After the personal allowance the next:

  • £0 – £33,500 = 20% (Basic rate tax payer: BRT)
  • £33,501 – £150,000 (£118,000) = 40% (Higher rate tax payer: HRT)
  • £150,000+ = 45% (Additional rate tax payer: ART)

Personal allowances

                                                                                 

     NTP                      BRT                            HRT                          ART                      


                          (Next £33,500)

£0 ——– £11,500 ————£45K————————–150K————————————————-

       

      0%                  20%                           40%                               45%

New rules on dividends from 2016

  • From April 2016, taxpayers with total dividend income of no more than £5K will pay no tax
  • Dividends received by an investor will be tax free up to £5K after the personal allowance
  • Irrespective of the individuals tax band, the first £5K of dividends will always be tax free.
  • Dividend income above £5K will be:
    • 7.5% within the basic rate band
    • 32.5% within the higher rate band
    • 38.1% in the additional rate band.

Investment Income: The starting rate of 0% only applies to savings and fixed income (FI) up to £5,000 after the personal allowance. Does not apply if taxable income from work/pensions exceeds £5K

HMRC Income tax: order of priority

  1. Non-savings income: Work, pensions in receipt
  2. Savings income: Savings/FI/Rental income (only savings/FI qualifies for 0% savings rate on £5,000 after the P/A). Not available if non-savings income exceeds the p/a plus £5K
  3. Dividend income: Income from shares
  4. Investment life policies: Chargeable gains made on certain life policies (i.e. Endowments)

Abbreviations

  • NTP: Non tax payer
  • BRT: Basic rate tax payer
  • HRT: Higher rate tax payer
  • ART: Additional rate tax payer