Author Archives: Maria Hunter

Income Tax 2019-20

Personal Allowances

  • Everyone is allowed to receive £12,500 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: A £1,250 transferable allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance (born after April 1935). A spouse/civil partner who is a NTP can transfer 10% of their personal allowance (£1,250) to their BRT payer spouse or civil partner. The allowance will not apply if the partner is a HRT or ART payer. This must be applied for.
  • Married couples allowance: Maximum allowance £891.50 to minimum allowance £345. Income is taxed at 10%. Must be married and one partner must have been born before 1935. If the couple were married after 5th December 2005 the highest earner can claim. The allowance is progressively removed by £1 for every £2 over £29,600 until it falls to the minimum of £345.
  • Blind persons allowance is an extra £2,450 on top of the basic allowance. It can be transferred to a 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 – £37,500 = 20% (Basic rate tax payer: BRT)
  • £37,501 – £150,000 (£112,500) = 40% (Higher rate tax payer: HRT)
  • £150,000+ = 45% (Additional rate tax payer: ART)

     NTP                      BRT                              HRT                          ART                      


                          (Next £37,500)

£0 ——– £12,500 —————£50K—————–———–150K————————————————-

       

      0%                        20%                           40%                               45%

Dividend tax rules

  • Taxpayers with total dividend income of no more than £2,000 will pay no tax.
  • Irrespective of the individual’s tax band, the first £2,000 of dividends will be tax free.
  • Dividend income above £2,000 will be:
    • 7.5% within the BRT (basic rate tax) band.
    • 32.5% within the HRT (higher rate tax) band.
    • 38.1% within the ART (additional rate tax) 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/rent exceeds £5,000.

HMRC Income tax: order of priority

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

Abbreviations

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

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

Taxation 2016/17

Taxation 2016/17

Personal Allowances

  • Everyone is allowed to have £11,000 of their income without paying tax.
  • The personal allowance is reduced to zero for any person earning over £100,000 per year, this applies at any age (this is reduced by £1 for every £2 over £100,000).
  • Marriage allowance: £1,100 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 (£1,100) 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 £835.50 to minimum allowance £322. 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 £2,290 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 – £32,000 = 20% (Basic rate tax payer: BRT)
  • £32,001 – £150,000 (£118,000) = 40% (Higher rate tax payer: HRT)
  • £150,000+ = 45% (Additional rate tax payer: ART)

Personal Allowances (P/A)

     NTP                 BRT          HRT                      ART

                       (Next £32,000)                

£0   ⇒    £11,000           ⇒  ⇒   £150K    ⇒   ⇒ (over £150K)

     P/A

      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 diviends 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.

Tax on Dividends

     NTP                      BRT              HRT                               ART

                           (Next £27,000)

                   (First £5K on dividends)

£0  ⇒   £11,000       ⇒    ⇒        £150K ⇒  ⇒  ⇒ (over £150K)

    P/A

    0%             0%       7.5%         32.5%                             38.1%

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)

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

Abbreviations

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

Back to Back plan

What is a Back to Back Plan?

A Back-to-back Plan is an estate planning tool ideal for people who continue to need income from their capital, but want to reduce their IHT liability. Capital is used to purchase an income producing annuity, with part of the income used to fund a whole of life policy (WOL) written in trust for the benefit of their beneficiaries.  The premiums are exempt as part of the annual exemptions, the remaining income from the annuity is available to spend by the annuitant.

The annuity purchased would be a Purchased Life annuity (PLA) which offers significant tax advantages as opposed to a lifetime annuity. When the annuitant dies the annuity is worth nothing for IHT purposes, thus reducing the estate liable to IHT. The PLA can be on a single or joint life second death basis. Problems may arise the older the person as the whole of life policy costs may be high.

Certain rules apply that when the policies (the WOL and PLA) are not associated, this would require the WOL policy being underwritten without reference to the annuity. To remedy this, the PLA and WOL policies should be purchased from different life offices. A similar type of plan involves an annuity alongside a Term assurance.