Mar 30

New tax and benefit changes starting this month

There are quite a few tax and benefit changes coming in this month (April 2016). Not only are there the ones that were announced in previous Budgets but there are others that were mentioned in this year’s Budget that will have effect as of now.

Here’s a list of what you can expect. Everyone will be affected by at least one of them so take a quick look at the list just in case!


New State pension and savings allowances

We have covered the new State pension in this article so take a look there.

Also, you can find out about how you can make up to £1,000 tax-free on your ordinary savings accounts and use your ISAs more flexibly here.


National Living wage

This is now live for those aged 25 and over. They get £7.20 an hour.

Those between 21 and 24 will still be subject to the minimum wage, £6.70.


Personal Allowance

Your personal allowance is the amount of money you are allowed to earn each year before you have to start paying tax on it.

Raising this has been a consistent theme from Osborne’s first Budget in 2010. At that point it was £6,475, In the last tax year it was £10,600. It’s now £11,000, will go up to £11,500 in April 2017 and he has already committed to a rise to £12,500 in 2020/21.

This massively increased personal allowance, coupled with the higher ‘living wage’ is likely to lead to a future Government scrapping in-work benefits such as Working Tax Credit (although they haven’t said that – it’s just our conjecture).


Higher rate Tax threshold

This is the point at which you have to start paying 40% tax rather than the basic rate of 20%. At the moment it is £42,385.

In last year’s Budget the Chancellor said that in April 2016 the 40% tax threshold would rise to £43,000 (£11,000 personal allowance plus £32,000 basic rate tax band).

It’s going to rise to £45,000 in 2017/18 but middle-class Scots are set to pay more income tax than their peers anywhere else in the UK after the SNP signalled it will not introduce the same policy. The Scottish Government said SNP ministers “do not consider this to be the right time for high earners to pay less tax.” 

The Chancellor has already committed to raising it to £50,000 by 2020/21.

Also, the Additional rate tax (45%) paid by those on really high incomes hasn’t changed. It’s at the same rate and still applies to income over £150,000.


Pension contributions

Higher earners are set to see tax relief on pensions slashed from April, as the size of the annual allowance will be gradually reduced from £40,000 to £10,000 for those making between £150,000 and £210,000 a year.

The lifetime allowance will also fall from £1.25million to £1million.


Stamp duty on second properties

There will be an additional 3% on the usual rate when you buy a second property now.

So that means you will pay 3% on homes worth up to £125,000, 5% on homes that cost between £125,001 and £250,000, 8% on homes worth between £250,001 and £925,000, 13% on homes worth up to £1.5m and 15% on anything over that.


ISA Limit

Following an increase to £15,240 in the ISA allowance during 2015, 2016-17 ISA limits remain frozen for the year and Junior ISA limit also frozen at £4,080, but they will go up to £20,000 and £4,128 respectively in April 2017


Marriage allowance

Married couples and civil partners can now transfer £1,100 of personal allowance (increased from £1,060 in 2015-16) from the lower-earning partner to the higher earner, saving them up to £220 tax. This only applies if the higher earner is a basic rate taxpayer (not a 40% taxpayer)


Capital Gains Tax

The higher rate of CGT will be cut from 28% to 20% this April.

Also, the basic rate of CGT will be cut from the current 18% rate to 10% at the start of the new tax year on 6 April. Budget documents show that the government estimates the changes to CGT will cost it more than £600m a year from 2017-18 onwards. 

However, the old higher rates will still apply to gains on the sale of a residential property that is not a main home (such as a second home or a buy-to-let property), and also to “carried interest”.


Tax on dividends

The dividend tax credit will be abolished from 6 April.

There will be a new Dividend Allowance – so you will get the first £5,000 in dividends tax free.

After that, you will face higher dividend tax rates. Dividends are also taken as a your last slice of income (taxable at the highest rate).

Basic rate tax payers will pay 7.5% on all dividends over the first £5,000.

Higher rate taxpayers will pay 32.5%

Additional rate taxpayers will pay 38.1%

Dividends and interest received in ISAs and pensions will continue to be exempt from tax.


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