Income Tax

Income Tax Allowances

The income tax Personal Allowance for the year 2016/2017 is £11,000 (2015/2016 – £10,600, for people born after 5 April 1938). If your total income is less than this during the tax year, you have no tax to pay.

If you are on an income of less than £11,000 (2016/2017), your bank or building society can provide you with HMRC’s Form R85 to apply for your interest to be paid gross.

Tax rates 2016-17: Income Tax Personal Allowances

2016 / 2017 2015 / 2016
Personal Allowance for people born after 5 April 1938(1) £11,000 £10,600
Personal Allowance for people born before 5 April 1938(1) £11,000 £10,660
Income limit for Personal Allowance(1) £100,000 £100,000
Income limit for Personal Allowance (for people born before 6 April 1938)(1) £100,000 £27,700
Income limit for married couple’s allowance(2) £27,700
Maximum amount of Married Couple’s allowance for people born before 6 April 1935(3) £8,355 £8,355
Minimum amount of Married Couple’s allowance for people born before 6 April 1935(4) £3,220 £3,220
Blind Person’s allowance £2,290 £2,290
Transferable Tax Allowance for married couples and civil partners(5) £1,100 £1,060
Dividend Allowance(6) £5,000 N/A
Personal Savings allowance for basic rate taxpayers(7) £1,000 N/A
Personal Savings allowance for higher rate taxpayers(7) £500 N/A

(1). From 2016-17 onwards, all individuals will be entitled to the same personal allowance, regardless of the individual’s date of birth. This allowance is subject to the £100,000 income limit which applies regardless of the individual’s date of birth. The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit.

(2). This allowance is subject to the £27,700 income limit. The individual’s personal allowance is reduced where their income is above this limit. The allowance is reduced by £1 for every £2 above the limit but is not reduced below £10,600 (unless the £100,000 income limit applies – see note 1)

(3). This allowance is subject to the £27,700 income limit. The individual’s married couple’s allowance is reduced by £1 for every £2 above the limit. That reduction only applies after any reduction to their personal allowance (see note 2). The individual’s married couple’s allowance is never reduced below the minimum amount. Tax relief for the Married Couple’s Allowance is given at the rate of 10%.

(4). This is also the maximum relief for maintenance payments where at least one of the parties is born before 6 April 1935.

(5). This transferable allowance is available to married couples and civil partners who are not in receipt of married couple’s allowance. A spouse or civil partner who is not liable to income tax; or not liable at the higher or additional rate, can transfer this amount of their personal allowance to their spouse or civil partner. The recipient must not be liable to income tax at the higher or additional rate. The recipient is eligible to a tax reduction of 20% of the transferred amount.

(6). From April 2016, the new Dividend Allowance means that individuals will not have to pay tax on the first £5,000 of dividend income they receive.

(7). From April 2016, the new Personal Savings Allowance means that basic rate taxpayers will not have to pay tax on the first £1,000 of savings income they receive and higher rate taxpayers will not have tax to pay on their first £500 of savings income.

Income tax bands and rates 2016-2017

2016 / 2017 2015 / 2016
Starting rate limit for savings(8) £0 – £5,000 £0 – £5,000
Starting rate for savings income(8) 0% 0%
Basic rate band £0 – £32,000 £0 – £31,785
Basic rate 20% 20%
Higher rate band £32,001 – £150,000 £31,786 – £150,000
Higher rate 40% 40%
Additional rate band Over £150,000 Over £150,000
Additional rate 45% 45%

(8). If, after deducting your Personal Allowance from your total income liable to Income Tax, your non-savings income is above the starting rate limit then the starting rate for savings will not apply. Non-savings income includes income from employment, profits from self-employment, pensions, income from property and taxable benefits.

The rates available for dividends are the 7.5 per cent ordinary rate, the 32.5 per cent dividend upper rate and the dividend additional rate of 38.1 per cent.

The self-employed can claim business expenses against their income. So make sure you include all possible justifiable business expenses on your self-assessment form. This also applies to capital allowances for expenditure on plant and equipment, including computers and tools, for example, used for your business.

It is worth remembering you may be able to pay further contributions to your pension, which can utilise unused tax relief.

Since its introduction in 1990, Gift Aid allows taxpayers to receive tax relief on gifts made to qualifying charities.

One other point to remember is if one spouse is a tax payer and the other is not or pays tax at a lower rate it is worth considering switching certain investments to take advantage of their unused tax allowances.

For further information about the 2016 Budget changes please click here.

 

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