For the current year the transfer of £1,060 of a personal allowance to a spouse or partner is allowed where the transferor’s income is less than £10,600 and the recipient doesn’t pay tax at the higher or additional rate.
Dividend taxation – all change from April 2016
The tax regime for dividends will change for 2016. This sees the abolition of the dividend tax credit, and the introduction of a dividend tax-free allowance and tax rates for dividend receipts. From April 2016, individuals will be able to receive £5,000 of dividends tax free, but will then be taxed on anything above this, as follows:
As announced previously, the rate of corporation tax is 20% from April 2015. The rate will be cut to 19% from 1 April 2017 and to 18% from 1 April 2020.
From 6 April 2015 Employment Allowance relief will continue to be available. Employers will be entitled to deduct up to £2,000 per annum from their liability to pay employers class 1 national insurance contributions. From 6 April 2016 the Employment Allowance relief will increase to £3,000 per annum. However, a ‘one man band’ Limited Company will not be able to claim the relief.
National Living Wage
From April 2016, a new National Living Wages will be introduced. Any employee over the age of 25 will be legally entitled to a minimum of £7.20 per hour. Any employee under the age of 25 will be entitled to the National Minimum Wage as before.
Annual Investment Allowance: permanent increase to £200,000 from January 2016
The maximum amount of the Annual Investment Allowance (AIA) was temporarily increased to £500,000 from April 2014 until 31 December 2015, after which it would have returned to £25,000. This new measure permanently increases the amount of the AIA to £200,000 from 1 January 2016. Where a business has a chargeable period that spans that date, the transitional rules will apply.
Increasing rent-a-room relief from £4,250 to £7,500 per year from 6 April 2016
The level of rent-a-room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property, will be increased from £4,250 to £7,500 per year. It also increases the level if an individual rents out rooms in a guest house, bed and breakfast or similar, provided that it is their main residence. The increase to the rent-a-room limit will apply from 6 April 2016.
Restricting mortgage interest relief for individual landlords from April 2017
This measure will restrict relief for finance costs on residential properties to the basic rate of income tax. To give landlords time to adjust, the government will introduce this change gradually from April 2017 over four years. Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
HMRC has been asked ‘to start a dialogue with businesses on how to improve the effectiveness of existing IR35 legislation’. The government wishes to protect the Exchequer and improve fairness in the system.
Seed Enterprise Investment Scheme (SEIS)
The scheme was not permanent, and runs until 5 April 2017. The investment limit for a qualifying individual in a fiscal year is £100,000 and cannot claim tax relief until the company has spent at least 70% of the money invested. The scheme will be affected by the new rules, which include the requirement for companies to be less than 12 years old when receiving their investment.
Changes to pensions
People with defined contribution schemes who are at least 55 years old can make withdrawals up to the value of the funds invested in the scheme. The first 25% will be tax free. An individual who makes a withdrawal will be restricted to making future pension contributions of no more than £10,000.
The lifetime allowance for pension contributions will reduce from £1.25m to £1m from 6 April 2016.
Inheritance tax: main residence nil-rate band and the existing nil-rate band from April 2017
This measure introduces an additional nil-rate band when a residence is passed on death to a direct descendant. This will be £100,000 in 2017-18, £125,000 in 2018-19, £150,000 in 2019-20 and £175,000 in 2020-21. It will then increase in line with the Consumer Prices Index (CPI) from 2021-22 onwards. Any unused nil-rate band will be able to be transferred to a surviving spouse or civil partner.
There will be a tapered withdrawal of the additional nil-rate band for estates with a net value of more than £2m. This will be at a withdrawal rate of £1 for every £2 over this threshold. The existing nil-rate band will remain at £325,000 from 2018-19 until the end of 2020-21.
This is a basic guide prepared by Franklin & Co Accountants Limited for their clients. It should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.