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Budget 2016 - Main points

Changes to tax and allowances for tax year 2016/17

Several changes are due to come into effect from the start of the tax year 2016/17 which affect pensions, bank deposits and dividends.

  • Pensions: The Lifetime Allowance is reducing from £1.25 million to £1 million.  If you have pension savings, including the equivalent from defined benefits schemes, which are above or close to this level there are steps you can take to protect against a lifetime allowance charge in the future. 
  • For high earners with adjusted income in excess of £150,000 per annum, the annual pension contribution allowance of £40,000 will be reduced by £1 for every £2 over this level to a minimum of £10,000, which will be reached when income exceeds £210,000. Any contributions in excess of this allowance are subject to a tax charge, although it may be possible to use carry forward rules to make use of any unused allowances from the previous 3 years.
  • The ISA allowance will remain at £15,240 for the tax year 2016/17
  • Interest: Tax will no longer be deducted at source from personal interest payments. Individuals will have a Personal Savings Allowance of £1,000 per annum for basic rate taxpayers and £500 for higher rate taxpayers, however additional rate taxpayers will have no allowance.  This is a major change from the current system where basic rate tax is deducted at source, with any additional tax due through self assessment.  This will be a benefit to most investors with cash on deposit.
  • Dividends: There will no longer be a notional 10% tax credit applied to dividend payments.  Everyone will have a tax-free Dividend Allowance of £5,000 per annum.  If dividend income exceeds this amount tax on the surplus will be due at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.  For basic rate taxpayers with dividends below the allowance there will be no change, but an increase in tax where they exceed this level.  Higher rate and additional rate taxpayers will benefit where dividends are below the allowance but pay more for higher amounts.
 

NOTE: Taxation depends on individuals as well as tax law and HMRC practice which can change


Winter 2015 Newsletter

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newsletterwinter2015.pdf

 

 

 
 

      

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