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Income Tax

Income Tax Allowances

The income tax Personal Allowance for the year 2016/2017, for people born after 5 April 1948, is £11,000 (2014/2015 – £10,600). If your total income is less than this during the tax year, you have no tax to pay.

If you are on an income of less than £11,000 (2016/2017), your bank or building society can provide you with HMRC’s Form R85 to apply for your interest to be paid gross.

There is a personal savings allowance of £1,000 and there is also a dividend income allowance of £5,000.

Tax rates 2016-17: Income Tax Personal Allowances

2015 / 2016 2016 / 2017
Personal Allowance (*for people born after 5 April 1938) £10,600* £11,000
Personal Allowance for people born before 6 April 1938 £10,660 n/a
Income limit for Personal Allowance(1) £100,000 £100,000
Income limit for Personal Allowance (for people born before 6 April 1948)(2) £27,700 n/a
Maximum amount of Married Couple’s allowance for people born before
6 April 1935(3)
£8,355 n/a
Minimum amount of Married Couple’s allowance (*for people born before
6 April 1935)(4)
£3,220* £3,220
Blind person’s allowance £2,290 £2,290
Transferable Tax Allowance for married couples and civil partners(5) £1,060 £1,100

(1). The Personal Allowance reduces where the individual’s income is above this limit by £1 for every £2 of income above the limit. This reduction applies irrespective of date of birth.

(2). This allowance reduces where the individual’s income is above the income limit by £1 for every £2 of income above the limit until it reaches the level of the personal allowance for someone born after 5 April 1948.

(3). This allowance reduces where the individual’s income is above the income limit by £1 for every £2 of income above the limit until it reaches the minimum amount. Any reduction in the married couple’s allowance applies after any reduction to the individual’s personal allowance. Tax relief for the Married Couple’s Allowance is given at the rate of 10%.

(4). This is also the maximum relief for maintenance payments where at least one of the parties is born before 6 April 1935.

(5). Available to spouses/ civil partners born after 5 April 1935. This allowance is 10% of the personal allowance for those born after 5 April 1938 and allows a spouse or civil partner who is not liable to income tax above the basic rate to transfer this amount of their personal allowance to their spouse/ civil partner. The recipient must not be liable to tax above the basic rate. The recipient is eligible to a tax reduction of 20% of the transferred amount.

Income tax bands and rates 2016-2017

2015 / 2016 2016 / 2017
Starting rate limit for savings £0 – £5,000 £0 – £5,000
Starting rate for savings income(6) 0% 0%
Basic rate band £0 – £31,785 £0 – £32,000
Basic rate 20% 20%
Higher rate band £31,785 – £150,000 £32,001 – £150,000
Higher rate 40% 40%
Additional rate band Over £150,000 Over £150,000
Additional rate 45% 45%

(6). If, after deducting your Personal Allowance from your total income liable to Income Tax, your non-savings income is above this limit then the starting rate for savings will not apply. Non-savings income includes income from employment, profits from self-employment, pensions, income from property and taxable benefits.

The rates of tax over the annual allowance for dividends are the 7.5 per cent for basic rate taxpayers, the 32.5 per cent for higher rate taxpayers and 38.1 per cent for additional rate taxpayers

The self-employed can claim business expenses against their income. So make sure you include all possible justifiable business expenses on your self-assessment form. This also applies to capital allowances for expenditure on plant and equipment, including computers and tools, for example, used for your business.

It is worth remembering you may be able to pay further contributions to your pension, which can utilise unused tax relief.

Since its introduction in 1990, Gift Aid allows taxpayers to receive tax relief on gifts made to qualifying charities.

One other point to remember is if one spouse is a tax payer and the other is not or pays tax at a lower rate it is worth considering switching certain investments to take advantage of their unused tax allowances.
For further information about the 2015 Budget changes please click here.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM TAXATION, ARE SUBJECT TO CHANGE.

THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE TAXATION & TRUST ADVICE.

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