This is a basic guide, prepared by Franklin & Co Accountants Ltd for their clients.
It is an introduction only and should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.
Rates and allowances
From 6th April 2016, the non-dividend tax rates and allowances will be as follows:
Personal allowance for those born after 5 April 1948 - £11,000
20% basic rate tax - £11,000 - £43,000
40% higher rate tax - £43,000 - £150,000
45% additional rate tax - £150,000 and above
The main rate of corporation tax is 20%. From April 2017 it will be 19%, from April 2020 it will be 17%.
Annual Investment Allowance
The annual investment allowance is £200,000 per annum and is available for companies and for unincorporated businesses. It applied from 1 January 2016.
Tax is payable on dividends over £5,000 at the following rates:
7.5% on dividend income within the basic rate band
32.5% on dividend income within the higher rate band
38.1% on dividend income within the additional rate band
Personal Savings Allowance
A basic rate taxpayer will be able to receive up to £1,000 of interest per year tax free on their savings.
A higher rate taxpayer will be able to receive up to £500 of interest per year tax free on their savings.
An additional rate tax payer will not have a Personal Savings Allowance.
Any amount received above these limits will be charged at the marginal rate.
Directors overdrawn loan account tax increase
Rate of tax charged on loans to participators increases. From 6 April 2016 the rate of tax charged on loans to participators (currently 25%) will increase to 32.5%.
Capital gain tax reduction
Legislation will be introduced in Finance Bill 2016 to reduce the 18% and 28% rates in those provisions to 10% and 20% respectively, subject to exclusions for chargeable gains on disposals of residential property.
This change applies from 6 April and allows for the transfer of £1,100 of a personal allowance to a spouse or partner where the transferor’s income is less than £11,000 and the recipient doesn’t pay tax at the higher or additional rate.
The Employment Allowance (Increase of Maximum Amount) Regulations 2016 increase the employment allowance from £2,000 to £3,000 while The Employment Allowance (Excluded Companies) Regulations 2016 now excludes limited companies where the director is the sole paid employee from April.
Restriction on mortgage interest deduction
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their rental profits. The relief in respect of finance costs will be restricted as follows:
2017/18 75% allowed 25% basic rate
2018/19 50% allowed 50% basic rate
2019/20 25% allowed 75% basic rate
2020/21 Nil 100% basic rate
The end of wear and tear allowance
From 5 April 2016 wear and tear allowance and the renewable allowance for property business will be replaced by a system allowing landlords of residential property to deduct only the actual costs incurred on replacing furnishings in the tax year. Capital allowances for furnished holiday lets will not be affected.
From April 2017, any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year and the government will pay in a 25% bonus on these contributions at the end of the tax year. The funds, including the government bonus, can be withdrawn from the Lifetime ISA from age 60, or earlier if being used as a deposit on a first time property purchase.
The government will introduce in Finance bill 2017 legislation that will move the liability to pay the correct employment taxes from a worker’s own company to the public sector body or agency / third party paying the company.
VAT Standard rate - 20%
Registration threshold - £83,000
Deregistration threshold - £81,000
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.
The higher rates (3% above the current SDLT) will apply to additional residential properties purchased on or after 1 April 2016 if at the end of the day of the transaction, an individual owns 2 or more properties and has not replaced their main residence.
This is a basic guide prepared by Franklin & Co Accountants Ltd. It should not be used as a definitive guide, since individual circumstances may vary. Specific advice should be obtained, where necessary.