With the end of the current tax year fast approaching it is important to understand the current tax system and allowances so that you can plan effectively. As such, we have outlined the current thresholds and allowances within a guide.
Personal Allowances and Reliefs
- The personal allowance for the current tax year is £11,500. Non-savings income above the personal allowance is taxed at rates from 20% to 45%.
- A higher marginal tax rate may be payable between £100,000 and £123,000 when the personal allowance is gradually withdrawn, giving an effective marginal rate of 60% in this band for non-savings and savings income.
- You may be able to transfer £1,150 of your personal allowance to your spouse or civil partner if neither of you is a higher rate taxpayer.
- Generally speaking, it is relevant when one spouse or civil partner is not able to use all of their personal allowance.
TAX ON SAVINGS
- The personal savings allowance allows a basic rate taxpayer to receive up to £1,000 of savings income tax-free, while a higher rate taxpayer can get up to £500 of savings income, without any tax being due.
- There is no relief for an additional rate (45%) taxpayer.
- This is the last year the £5,000 tax-free dividend allowance (a band in which dividends are taxed at 0%) is available.
- From 6 April 2018, the dividend allowance reduces to £2,000.
- Adults can invest up to £20,000 per tax year into an ISA.
- Growth, income and withdrawals from an ISA are free of income tax and capital gains tax (CGT), but the value of an ISA will form part of your estate for inheritance tax(IHT) purposes.
- A Junior ISA allowance of up to £4,128 is available for those who are 17 or under.
- ISAs are normally readily accessible (subject to scheme rules).
- It is also possible, as part of the annual £20,000 ISA allowance, to invest £4,000 in a Lifetime ISA which receives an annual government bonus of up to 25% of your savings.
- The funds can be used on the purchase of the first home, or used for retirement.
- There are further scheme rules and early withdrawal penalties,but you must be over 18 and under 40 to open a Lifetime ISA.
- Help to Buy ISAs allow individuals over the age of 16 to save up to £200 a month towards their first home.
- Savers can also deposit a lump sum of up to £1,000 when they set up their account.
- The money will earn interest and will also qualify for a 25% government bonus (up to £3,000), providing the funds are used to buy a first home.
For more information, including planning options for the aforementioned, download our full guide. The areas discussed include:
- Personal Allowances;
- Pension Contributions;
- Inheritance Tax;
- Capital Gains Tax;
- Non-UK Domicile Tax;
- Tax Credits;
- Corporation Tax;
- Business Deductions;
- Entrepreneurs Relief;
- Penalties; and
- Upcoming Changes.
For further information download our Year End Tax Guide