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 5^th 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