web analytics
BOOK A FREE CONSULTATION

The 2016-17 tax year has brought some major changes to the tax codes and its subsequent consequences to an individual’s personal financials. To make things simpler for our clients, we have made a list of the major changes for 2016-17.

Income Tax

To avail the benefit, income for the tax-year should be £11,000 (the new personal allowance) or less, and the partner’s income must be a basic-rate i.e. between £11,001 and £43,000.

Tax Changes

Increase in tax-free personal allowance: Tax-free personal allowance is the threshold after which the income becomes taxable. The allowance has increased 3.77% to £11,000, from £10,600 and it will again increase to £11,500 on 6 April 2017. This is advantageous for tax filers

Increase in the 40p tax threshold: The limit for higher-rate of income tax has been revised. The limit value, after which an individual will pay the higher-rate of income tax (40%), is increased to £43,000. This is an increase of 1.45%, from £42,385 in the 2015-16 tax year

Improvement in the marriage allowance: Marriage allowance has been increased 3.77% from £1,060 to £1,100. This means either of the spouses earning less will be able to transfer £1,100 (from their tax-free personal allowance) to their husband, wife or civil partner, thereby decreasing the payable tax. Transfer amount should be exactly £1,100 – not more or less.
HM Revenue and Customs (HMRC) gives a partner extra allowance by altering their tax code (usually to 1166M, which may take upto 2 months) or when they send a self-assessment tax return in case of self-employment

Property Tax

Stamp duty has been increased for landlords and for people buying second homes. They will pay a 3% surcharge on the existing price bands from 1 April 2016. Until 1 April 2016, buyers were not required to pay stamp duty on the initial £125,000 of their new property’s value. Post the initial value, 2% stamp duty payable on £125,000 - £250,000 portion, and 5% stamp duty payable above £250,000 - £500,000. The rates continue to increase above this.

Now, from 1 April 2016, those purchasing a second-home or buy-to-let property will have to pay a 3% stamp duty surcharge on the existing bands. Hence, stamp duty is 3% on property worth £40,000 to £125,000, 5% upto £250,000, and 8% upto £500,000. For £275,000 home, the stamp duty will be £3,750 as per the current rate. This is computed as:

Particulars Value
0.0% on the initial £125,000 £0.0
2% * £125,000 £2,500
5% * £25,000 £1,250
Total £3,750

But, now with the addition of 3% surcharge, the payable amount will increase drastically.

Particulars Value

3% * £125,000 (initial)

£3,750

5% * £125,000 (next)

£6,250

8% * £25,000 (final)

£2,000

Total £12,000

Change in wear and tear allowance: Under this allowance, landlords could offset 10% of their rental income against tax for maintenance, irrespective of the fact that they carried out any repairs or not. Starting April 2016, they will be able to claim no more than the amount for maintenance which they can prove has taken place. Hence, they will have to carefully keep record of receipts and invoices. According to the government, the measure will have effect for expenditure taken place on or post 1 April 2016 for corporation tax payers, and 6 April 2016 for income tax payers.

Wages

For all workers 25 or over, a national minimum wage has been introduced.

New national living wage of £7.20: For employees aged 25 or over, this new rule came into effect on 1 April 2016. Under this, an improvement of 50p per hour was made as compared to the earlier £6.70 for workers aged 21 and over.
 
Increase in national minimum wage: From 1 October 2016, national minimum wage will increase for all workers under the age of 25. The below table helps to compare the rates:

Year 21 and over 18 to 20 Under 18 Apprentice

2016*

£6.95

£5.55

£4

£3.40

2015

£6.70

£5.30

£3.87

£3.30

2014

£6.50

£5.13

£3.79

£2.73

2013

£6.31

£5.03

£3.72

£2.68

2012

£6.19

£4.98

£3.68

£2.65

2011

£6.08

£4.98

£3.68

£2.60

2010

£5.93

£4.92

£3.64

£2.50

*From 1 October 2016 – until then the 2015 rates apply.

Savings

Launch of Personal savings allowance: From 6 April, individuals with taxable income between £17,000 and £43,000 a year will qualify for a £1,000 tax-free allowance. This means that they can earn upto £1,000 per year in savings income without paying tax. Higher-rate taxpayers who have taxable income between £43,001 and £150,000 will also receive an allowance of £500 per year

New Innovative Finance Isa arrives: Also known as the peer-to-peer Isa, the new tax allows returns from investments in peer-to-peer loans to grow tax-free

Capital gains tax (CGT)

The rates of capital gains tax, which is a levied on the profits made from the sale of assets, will reduce from April. The CGT rate for basic rate taxpayers will decrease from 20% to 10%, while the rate for higher rate taxpayers will decrease from 28% to 18%. However, the rates of CGT payable on residential property sales remains unchanged at 18% for basic rate taxpayers and 28% for higher rate taxpayers. The CGT tax-free allowance remains unchanged at £11,100

Pensions

Basic state pension increased: From 6 April, the basic state pension rate increased from a maximum of £115.95 per week to £119.30

Lifetime allowance decreased: Tax is payable if the pension pot is worth more than the lifetime allowance. From 6 April 2016, this allowance will reduce from £1.25mn to £1.0mn, a reduction of 25%. The rate of tax an individual pays on pension savings above the lifetime allowance depends on how the money has been paid to an individual. The standard rate is 55% if the amount is received as a lump sum and 25% if it is received by any other means

Tapered annual allowance: For people earning between £150,000 and £210,000 a year, the annual allowance will gradually be reduced from £40,000 to £10,000, a 75% reduction

Ending National insurance ‘contracting out’: From 6 April, individuals will not be able to contract out under second State Pension or SERPs. The scheme allowed those paying into a company pension scheme to pay a reduced rate of national insurance (NI) or pay into a private pension.

For additional information regarding tax changes, please click here.

HOW DNS ACCOUNTANTS CAN HELP WITH TAX CHANGES

DNS Accountants is a leading taxation and accounting firm and the team at DNS has exceptional knowledge in the accounting and taxation domain. The firm has been helping clients with tax code related queries as clients are very sceptical about the changes that have taken place since 6 April 2016. The DNS team includes erudite taxation professionals, and ACA’s or Chartered Accountants (CAs) working towards delivering exceptional customer service DNS Accountants offers services at a nominal rate.

Dependable services are crucial to a business/corporation and this is a principal reason why organisations rely on DNS Accountants. The firm provides best-in-class taxation and accounting services to owner-managed businesses and self-employed individuals. Apart from tax code consulting, our other services include self-assessment, property tax advising, tax return preparation and filing, payroll management etc.

Share this post



Sign up to our newsletter

Tax news for contractors freelancers and small businesses.