Tax Year Breaks
UK tax legislation is constantly evolving, and the last Budget introduced further significant changes which most people may not be aware of. This article highlights some of the more important changes which should prompt individuals to check they are not paying too little or too much tax;
- Those with income less than £100,000 will benefit from a £400 increase in their Personal Allowance, making the first £11,000 of earnings tax free.
- From 6 April 2016 all interest and dividends will be paid without tax being deducted at source. This is good news for non-tax payers, however a tax payer needs to ensure that any tax due on savings income is reported to HMRC and the correct amount of tax paid.
- The introduction of the new Personal Savings Allowance means that many people will no longer pay tax on their savings income of up to £1,000 pa for basic rate tax payers, and £500 pa for higher rate tax payer. Individuals with modest incomes should not overlook the savings rate tax band, where tax is now zero on savings income up to £5,000. However to be eligible total income must be less than £16,000 per tax year.
- The Chancellor also introduced changes to the way in which dividends are taxed. Individuals will no longer have to pay tax on the first £5,000 of their dividend income, however all dividend income will be taken into account when calculating what rate of tax will be payable. A basic rate tax payer will be liable to tax at 7.50% on dividend income (in excess of £5,000); a higher rate tax payer liable to tax at 32.5% and an additional rate tax payer liable at 38.1%.
- A niche planning opportunity has arisen for anyone whose total income is less than £16,000 in any tax year, and who owns an Offshore Single Premium Bond. When the Personal Allowance is combined with a zero rate tax on income in the savings rate tax band of up to £5,000, gains from the bond within this amount will not be subject to income tax.
Controlling taxation, and maximising all available allowances, is a very important aspect of holistic financial planning and individuals should regularly check to ensure they are doing everything they can to pay the correct rate of tax.
When structuring your financial affairs you should seek independent legal and financial planning advice. If you would like to discuss your options in more detail, please contact OCM Wealth Management on 01604 621 467.