As if last year wasn’t hectic enough, there is another raft of changes that come into effect from 6 April this year that could affect a number of our readers. Given that these can have potential taxation implications it’s worthwhile being aware of so that action can be taken in good time.
Personal Savings Allowance
This is brand new and will affect all taxpayers with cash savings not held in an Individual Savings Account (ISA).
All banks and building societies will no longer automatically deduct the basic rate of income tax from interest accrued on your savings. This means that there is a potential saving as a new allowance will be introduced.
For basic rate tax payers this will be the first £1,000 of interest. Higher rate tax payers will be entitled to half of this, but for additional rate tax payers there is no tax free interest band available.
Dividend Allowance
This is also brand new and will affect all individuals in receipt of dividends, either from a company as part of a remuneration strategy or from investments that are not held within an ISA or pension.
The previous dividend tax credit rules are replaced with a tax free allowance, which entitles all individuals to the first £5,000 of income from dividends each tax year free from taxation.
Dividends over this level will be subject to tax and for basic rate tax payers this will be 7.5%, higher rate tax payers will pay 32.5% and additional rate tax payers will pay 38.1%.
ISA Limits
For the first time in a considerable number of years, the tax free annual limits are frozen. This year’s contribution limit remains at £15,240 and £4,080 per child for Junior ISAs.
Basic State Pension
This rises to £119.30 per week for those in receipt of the full basic state pension.
New State Pension
For those retiring now and in the future, the basic state pension will take the shape of a new flat rate.
This will be at least £155.65 per week for those qualifying with the minimum of 35 years of National Insurance contributions.
Those who had previously contracted-out of the state pension scheme during their working life will be entitled to a lower level and there are some instances where some individuals will be entitled to a higher rate.
There is an option to make additional voluntary contributions in order to increase your entitlement and financial advice is strongly recommended for those considering this.
Buy-to-Let
Announced in the Chancellor’s Autumn Statement is a new, additional rate of Stamp Duty that will apply on Buy-to-Let property sales.
An additional 3% will now become payable on top of the usual Stamp Duty rates and this may have significant implications for the Buy-to-Let market.
Lifetime Allowance reduction
The Lifetime Allowance applying to pensions will reduce from £1.25million down to £1million.
This will impact upon those who have accumulated pension benefits that are valued over this level and any amount in excess of £1million could potentially be subject to taxation at a whopping 55% if benefits are taken as a lump sum, or 25% if taken as an income. These rates are in addition to the individual’s marginal Income Tax rate.
Some protection will be available for those affected, but details have not yet been announced, so care should be taken when making contributions, or accruing further benefits within final salary schemes.
Tapered Annual Allowance
Those individuals with high earnings and making ongoing pension contributions will see restrictions to the amount of tax relief they can claim.
For every £2 earned over £150,000 an individual’s Annual Allowance will be reduced by £1, so those earning over £210,000 are likely to see their Annual Allowance limited to just £10,000.
Anyone with sufficient earnings and wishing to maximise the existing allowances should act before 6 April. The carry forward facility could also be utilised if not previously utilised.
As you can see, there are a number of rules and restrictions that come into effect in 2016 that could affect you more than in previous tax years.
If you have significant savings in cash, or are largely remunerated by dividends, it could be worthwhile meeting with a financial adviser to review your portfolio and to ensure that you’re making the most of the reliefs and allowances available.
Those with significant earnings or who have built up substantial pension funds could also benefit from seeking financial advice sooner rather than later.
