INCOME TAX BANDS

The 20% basic rate band for 2016/17 will be £32,000 and for 2017/18 it was announced that this will be £33,500. This means that you will pay 40% tax if your taxable income exceeds £43,000 for 2016/17 and the threshold will be £45,000 for 2017/18. The 45% top rate continues to apply to taxable income over £150,000 for 2016/17.

New Personal Savings Allowance

A new tax-free savings allowance will be available to basic and higher rate taxpayers from 6 April 2016.  The new allowance will mean that no tax will be payable on savings income until the new savings allowance has been used up.  For the 2016/17 tax year, the new savings allowance is set at £1,000 for basic rate taxpayers and at £500 for higher rate taxpayers.  There is no savings allowance for additional rate taxpayers, who will be taxed, as now, on all of their savings income.

As a result of this change, banks and building societies will no longer deduct tax at source from interest paid to savers.  Consequently, if you are a non-taxpayer, you will no longer need to elect to receive your bank and building society interest gross.

For those whose income comprises wholly or mainly savings income the 0% savings starting rate remains available on the first £5,000 of taxable savings income.  However, this band is reduced by any taxable non-savings income (such that those who have taxable non-savings income of at least £5,000 do not benefit from the 0% starting rate band).  The combined effect of the personal allowance £11,000 for 2016/17), the new savings allowance £1,000 for basic rate taxpayers for 2016/17) and £5,000 starting rate band means that it is possible to receive up to £17,000 tax-free in savings income in 2016/17 (in addition to that receive in tax-free wrappers such as ISAs).

In light of the change to the taxation of savings, it may be beneficial to undertake a savings review with your tax or financial adviser.

PERSONAL ALLOWANCES

As already announced, the basic personal allowance for 2016/17 will be £11,000.  The March Budget announced that this will increase to £11,500 for 2017/18. Remember that if your adjusted net income exceeds £100,000 the personal allowance is reduced by £1 for every £2 over £100,000 giving an effective rate of 60% on income between £100,000 and £122,000 for 2016/17.