Financial Planning for the 2016-17 Tax YearWith the 2016-17 tax year shortly drawing to a close there are a number of options you may want to consider. We have summarised some of the key considerations below and included links to further information.
- For 2016/17, the tax free personal allowance is £11,000 and the next £32,000 is taxed at 20%. Higher rate tax of 40% is charged on income above £43,000 and additional rate tax of 45% is charged on income above £150,000.
- New rates of tax for dividends came into effect for dividends received on or after 6 April 2016. A nil rate band of £5,000 is available for all tax payers. Thereafter, any dividends falling within the basic rate band are taxed at 7.5%, 32.5% for dividends falling within the higher rate band and 38.1% for dividends falling into the additional rate band. (Rates will be changing again in 2017/18) Dividend Allowance Factsheet
- A personal savings allowance was introduced from 6 April 2016. Basic rate taxpayers are entitled to £1,000 of tax free savings income and higher rate tax payers £500, with additional rate tax payers receiving no allowance. (consider equalising between partners) Personal Savings Allowance Factsheet
- Married couples and civil partners have further opportunities for using their allowances and it should not be forgotten that children also have tax free allowances. Marriage Allowance Capital Gains Tax
- The annual exemption for 2016/17 is £11,100 and it cannot be carried forward to future years. The rate of Capital Gains Tax (CGT) is 10% where the total of taxable gains and taxable income is less than £32,000. Any excess gains are taxed at 20%. Where Entrepreneurs Relief applies, the rate on the whole gain is 10%. Gains on residential properties are taxed at 18% where the total of taxable income and gains is below £32,000. Above this threshold the tax rate is 28%. (consider equalising between partners) Capital Gains Tax and Annual Tax Free Allowances Pension Schemes
- Generally, you can contribute £40,000 (gross) a year into a pension scheme. This can be increased if you did not use up your allowances in the preceding 3 years. The total you can invest in a suitable pension arrangement each year was reduced by £10,000 (£50,000 to £40,000) on 6 April 2014. Pension Scheme Rates Pension Allowances Tax Favoured Investments
- Individual Savings Accounts (ISAs) - The maximum allowance for 2016/17 is £15,240, but this will increase to £20,000 for 2017/18.
- Tax relief is available where you subscribe for shares qualifying for Enterprise Investment Schemes (EIS) or Seed Enterprise Investment Schemes (SEIS) relief.
- Under the EIS scheme, your tax liability for the year may be reduced by up to 30% of the sum invested (up to a maximum of £1m invested in the year). In addition, capital gains from disposals in the previous 36 months or following 12 months may be reinvested into EIS shares, resulting in a deferral of the gain. Enterprise Investment Scheme
- The SEIS scheme offers another form of reinvestment relief for investors who subscribe for shares in small startup companies. For 2016/17, the maximum qualifying investment is £100,000. Income tax relief is given at the rate of 50% of the sum invested, and relief may be given against tax in 2016/17 or 2015/16. Seed Enterprise Investment Scheme
- Venture Capital Trusts (VCTs) are specialist tax incentivised investments that enable individuals to invest indirectly in a range of small higher risk trading companies and securities. Venture Capital Schemes Manual Tax on Residential Properties (ATED)
- Annual Tax on Enveloped Dwellings (ATED) is a tax change that can apply when residential property with a value of at least £500,000 is held in an 'envelope'. Broadly, an envelope includes a limited company, an LLP with a corporate partner or a collective investment scheme. Annual Tax on Enveloped Dwellings the Basics Deemed Domicile Rule
- Legislation will be introduced in Finance Bill 2017 to deem certain individuals to be domiciled here for the purposes of Income Tax, CGT and IHT. This will be the case where they meet 1 of 2 conditions:
- where an individual was born in the UK with a UK domicile of origin and whilst they are UK resident or return to the UK having obtained a domicile of choice elsewhere
- where an individual who has been resident in the UK for at least 15 out of the previous 20 years Deemed Domicile Rule Inheritance Tax
- The Inheritance Tax (IHT) nil rate band is currently frozen at £325,000 until 5 April 2021. As part of a person's ongoing Inheritance Tax planning, full use should be made of available exemptions. The exemptions are relatively small, but, over time the effect can be substantial: Inheritance Tax The Newsletter is designed for the information of readers only and readers should not act on any of the information contained on the Newsletter without seeking professional advice. Nothing in this Newsletter constitutes advice, nor does the transmission, downloading or sending of any information or the Material create any contractual relationship. Links to third party websites are provided as a convenience to the reader, PR Hartley does not control and is not responsible for any of those websites or their content.
- The dividend tax allowance is introduced along with increased tax rates on dividend income. More about Dividends
- The annual allowance for pension contributions for higher earners will be reduced. More about Pension Allowances
- The lifetime allowance for retirement savings drops from £1.25 million to £1 million. More about Lifetime Allowance FROM 6th APRIL:
- All companies will be required to maintain a register of their (PSC)s - People with Significant Control. More about Companies House PSC Register
- The 3% stamp duty surcharge comes into force for buy to let or second homes in England and Wales. More about Stamp Duty Land Tax
- Landlords need to be aware of changes to the wear and tear allowance. More about Landlords / Buy to Let
- Tax on gains from company liquidations is changing. More about Liquidations ALREADY IN PROGRESS:
- The Workplace Pension - If you employ at least one member of staff in your business or at home, you must comply. More about the Workplace Pension
- Digital tax accounts will be compulsory by end 2016 for all taxpayers More about Digital Tax Accounts
- Changes in the rules for ATED returns More about ATED
Update March 2016The start of the new tax year in April 2016 sees the introduction of a number of new measures of which you need to be aware. Below are some of the key changes:
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