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2. Income tax savings in 2016-17

The major tax rates and thresholds for 2016-17 are as follows:

  2015-16 2016-17
Basic rate 20% 20%
Higher rate 40% 40%
Additional rate 45% 45%
Starting rate for £5,000 savings income 0% 0%
Dividend ordinary rate – for basic rate taxpayers 10% 7.5%*
Dividend upper rate – for higher rate taxpayers 32.5% 32.5%*
Dividend additional rate – for 45% taxpayers 37.5% 38.1%*
Basic rate band £0-31,785 £0-32,000
Higher rate band £31,786-£150,000 £32,001-150,000
Additional rate band Over £150,000 Over £150,000

*if above the dividend allowance – see below.

The Income tax allowances for 2016-17 are:

Personal Allowance £11,000
Income limit for personal allowance £100,000
Blind person’s allowance £2,290
*New* dividend allowance £5,000
*New* personal savings allowance for basic rate taxpayers £1,000
*New* personal savings allowance for higher rate taxpayers £500

There are two important things to note:

  1. As mentioned in the last newsletter, the taxation of dividends is changing and you will get a new £5,000 tax-free dividend allowance. Any dividends above that are taxed, even if you are a basic rate taxpayer.
  2. A new personal savings allowance is being introduced (unless you are a 45% taxpayer) and you will get up to £1,000 tax-free savings interest (£500 for higher rate taxpayers). All interest payments will then be made without deduction of tax.

This means that you could pay less tax on your savings and investments. Get in touch and we can check this for you. This is especially important if you have stocks and shares or UK equity income funds.

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