What’s New in 2016/17
At the start of a new tax year it can be difficult to stay up-to-date with the latest changes to tax relief, personal allowances and limits. In this article, we explain what’s new in 2016/17.
No Change to ISA Limit
In George Osbourne’s 2015 Autumn Statement, he announced that the 2015/16 ISA limit of £15,240 would be frozen, and the Junior ISA limit would remain at £4,080.
In the 2016 Budget statement however, The Chancellor informed us that from April 2017 the ISA limit will rise to £20,000. Savers hoping to invest more in to their ISAs since 2015 welcomed this new proposal.
Pension Limit Stays the Same
The pension annual allowance has not changed from the previous tax year as it remains at £40,000. However, if you have a taxable income of over £150,000, your annual allowance is reduced by £1 for every £2 of income you have over £150,000. The maximum reduction is £30,000, so if you earn £210,000 or more, you will have an allowance of £10,000.
For the 2016/17 tax year, the Pensions Lifetime Allowance was reduced from £1.25 million to £1 million. This will not affect most people, however, do remember that your pension is a long term commitment so as the time to withdraw your pension draws closer, be aware that it might be beneficial to make sure you are not going to exceed the lifetime allowance.
Savings Allowance Introduced
One of the biggest announcements for the 2016/17 tax year is that you no longer pay any tax on the first £1,000 of interest on your savings income. This is one of the most important savings shake-ups for a generation as it means that 95% of you will no longer pay tax on your savings accounts. This includes interest from bank and building society accounts and accounts with providers such as credit unions or Investments and National Savings. It is important to note that this does not include interest from ISAs as they’re already tax free, nor dividend distributions.
Your personal savings allowance will depend on what rate of tax you pay, therefore:
- Basic rate taxpayers (20%) – can earn up to £1,000 interest tax free
- Higher rate taxpayers (40%) – can earn up to £500 interest tax free
- Additional rate taxpayers (45%) – no allowance
Another helpful piece of information is that banks and building societies will no longer be able to deduct basic rate tax from interest.
Income Tax Allowance Rises
The Income Tax threshold rose to £11,000 for the 2016/17 tax year. This equates to £212 per week of tax free earnings. According to The Treasury, this has lead way for 570,000 people seeing their income tax bill vanish. The threshold for the 40% tax rate for higher rate taxpayers increased to £43,000 and for additional rate payers it remained at £150,000.
The table below shows examples based on earning £25,000 or £50,000 per year:
|Gross pay – £25,000||Gross pay – £50,000|
|Tax free personal allowance – £11,000||Tax free personal allowance – £11,000|
|Taxable Pay – £14,000||Taxable Pay – £39,000|
|Tax Due – £2,800
National Insurance – £2,032.80
|Tax Due – £9,200
National Insurance – £4,332.30
|Total Deductions – £4,832.80||Total Deductions – £13,532.80|
|Net Pay – £20,167.20||Net Pay – £36,467.20|
No Change to Capital Gains Tax
There is no change in the Capital Gains Tax (CGT) Allowance for the tax year 2016/17 as it remains at £11,100.
However, the rates have significantly reduced. Since April 2016, those who pay the basic rate of Income Tax now benefit from a decreased rate of 10% (down from 18%). Those who pay the higher rate of Income Tax now pay a reduced CGT rate of 20%, down from 28%. The only rates that did not change are for those with a second home, where rates remained at 18% and 28% respectively.
For basic rate tax payers, the changes for the year 2016/17 were rather minimal, however, those who pay higher rate income tax saw a number of new factors coming into play which affect their savings and investments.