The New Tax Year Round Up
The start of the new tax year brought with it many changes and often these can be difficult to keep track of. Below I have summarised some of the key points relating to Personal Tax and Capital Gains Tax so they are all in one place. Hopefully this is useful from a technical point of view or simply if it is bedtime and you need help sleeping!
The personal allowance: For those born after 5th April 1938, the personal allowance for the current tax year (2016/2017) is £11,000. Those born before 6th April 1938 used to get a slightly higher allowance but with effect from 2016/2017 onwards, one personal allowance will apply regardless of age. Please also note that the personal allowance is reduced £1 for every £2 of income over £100,000.
Tax bands & rates: The basic rate is currently 20%. The band of income taxable at this rate is £32,000 for 2016/2017 so that the threshold at which the 40% band applies is £43,000 (including the personal allowance of £11k). The additional rate of tax of 45% remains payable on taxable income over £150,000.
For the following tax year (2017/2018), the Chancellor has announced that the personal allowance will be increased to £11,500 and the basic rate band limit increased to £33,500. The high rate threshold will therefore increase to £45,000 for those entitled to a full personal allowance.
Dividends: From 6th April 2016, the 10% dividend rate is abolished with the result that the cash dividend received will be the gross amount potentially subject to tax. A new dividend tax allowance charges the first £5,000 of dividends received in a year to 0%. For dividends over £5,000, new rates of tax on dividend income will be 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Tax on savings income: The starting rate limit for the savings allowance remains at £5,000 for 2016/2017. However, the available savings allowance in a tax year will depend on the individual’s marginal rate of income tax. Individuals taxed at up to the basic rate will have a savings allowance of £1,000. For higher rate taxpayers, the savings allowance will be £500 and no savings allowance will be available to additional rate taxpayers. Alongside the introduction of the savings allowance, banks and building societies will cease to deduct tax from account interest they pay to customers from 6th April 2016.
Individuals Savings Account (ISAs): The total an individual can save each year into all ISAs remains at £15,240 for 2016/2017. The amount is expected to be increased to £20,000 with effect from 6th April 2017.
Employee benefits and expenses:From 6th April 2016, a number of changes are introduced relating to the tax treatment of employee benefits in kind and expenses. Firstly, there will be a statutory exemption for certain expenses such as travelling and subsistence expenses, reimbursed to the employee. This will replace the system where employers have to apply for a dispensation to avoid having to report non-taxable expenses (on forms P11D). Secondly, employers will be able to include taxable benefits in pay and thus account for PAYE on the benefits. However, in order to payroll benefits, employers will have to register with HMRC for the service before the start of the tax year. Employers will then not need to include these payroll benefits on forms P11D.
Class 2 NIC: The government will abolish Class 2 NIC from April 2018. The Class 2 NIC is the additional NIC for those who are self employed. The government will publish a response to the recent consultation on state benefits entitlement for the self employed in due course. This will set out details of how the self employed will access the contributory benefits after Class 2 NIC is abolished.
From April 2017, the government will introduce a new £1,000 allowance for property and trading income. Individuals with property or trading income below £1,000 will no longer need to declare or pay tax on that income. Those with income above this allowance will be able to calculate their taxable profit either by deducting their expenses in the normal way or by simply deducting the relevant allowance.
Capital Gains Tax (CGT): The government is to reduce the higher rate of CGT from 28% to 20% and 18% to 10%. The trust CGT rate will also reduce from 28% to 20%. The 28% and 18% rates will continue to apply for carried interest and for chargeable gains on residential property that do not qualify for private residence relief. In addition, the 28% rate tax still applies for ATED related chargeable gains accruing to any person (principally companies). These changes will take effect for disposals after 6th April 2016.
Entrepreneurs Relief (ER): The rate for disposals qualifying for Entrepreneurs Relief will remain at 10% with a lifetime allowance of £10 million for each individual.
Disposals of residential properties by non UK residents: Although old news, I still think this is worthy of a mention! All disposals made by non UK residents must be reported to HMRC within 30 days of conveyance, even if you have no tax to pay, you made a loss, or you are registered with HMRC. Failure to notify within 30 days will incur a £100 penalty. If a property was jointly owned, each owner must tell HMRC about their own gain or loss. You must also pay any non resident CGT due within the same 30 day period although there are exemptions to the pay now rule if you already have an existing relationship with HMRC for example through self assessment. If you do, you can either (1) pay when you submit your return, or (2) defer payment until the normal due payment date.
Rent a room Allowance: Don’t forget that the allowance went up to £7,500 with effect from 6th April 2016 so consider renting out those empty rooms for tax free income!
If you would like to discuss any of these changes with an advisor, please get in touch on 020 8545 7600.