The latest Clay Shaw Butler Money Matters column from the Carmarthenshire Herald
By Mark Jones, director of Carmarthen-based Clay Shaw Butler chartered accountants and business consultants.
Everyone knows that it pays to check the small print.
So it is with the Government’s Autumn Statement.
Over the last couple of weeks, Money Matters has focussed on some of the main items in the Government’s ‘state-of-the-nation’ autumn housekeeping, such as the U-turn on Tax Credits.
This week, the focus is on some more of the small print in some of the personal tax issues (for those with business and employment tax issues, we will get to these topics in the coming weeks).
The Chancellor George Osborne combined the Autumn Statement and with what is called a Spending Review when he presented his key points to Parliament.
Here is our summary of just some of the key personal tax issues –
Taxation of dividend income:
Currently, when a dividend is paid to an individual, it is subject to different tax rates compared to other income due to a 10% notional tax credit being added to the dividend. So for an individual who has dividend income which falls into the basic rate band the effective tax rate is nil as the 10% tax credit covers the 10% tax liability. For higher rate (40%) and additional rate (45%) taxpayers, the effective tax rates on a dividend receipt are 25% and 30.6% respectively.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
From 6 April 2016:
the 10% dividend tax credit is abolished with the result that the cash dividend received will be the gross amount potentially subject to tax
a new Dividend Tax Allowance charges the first £5,000 of dividends received in a tax year at 0%
for dividends above £5,000, new rates of tax on dividend income will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
Many individuals do not have £5,000 of dividend income so are potential winners in the new regime.
The removal of any tax on dividends up to £5,000 increases the attractiveness of holding some investments which provide dividend returns rather than interest receipts.
Use can then also be made of the CGT (Capital Gains Tax) annual exemption by selective selling of investments.
Basic rate taxpayers need to appreciate that all dividends received still form part of the total income of an individual. If dividends above £5,000 are received, the first £5,000 will use up some or all of the basic rate band available. The element of dividends above £5,000 which are taxable may well therefore be taxed at 32.5%.
Help to Buy ISA:
The Government announced the introduction of the Help to Buy ISA in the March Budget.
The scheme will provide a Government bonus to each person who has saved into a Help to Buy ISA at the point they use their savings to purchase their first home.
For every £200 a first time buyer saves, the Government will provide a £50 bonus up to a maximum bonus of £3,000 on £12,000 of savings.
Help to Buy ISAs will be available for first time buyers to start saving into from 1 December 2015. First time buyers will be able to open their Help to Buy ISA accounts with an additional one off deposit of £1,000.
Free childcare:
From September 2017 the free childcare entitlement will be doubled from 15 hours to 30 hours a week for working parents of 3 and 4 year olds.
The Government will implement this extension of free hours early in some local areas from September 2016. This free childcare is worth around £5,000 a year per child. The 30 hours free childcare offer for working parents of 3 and 4 year olds has been extended to help families maintain childcare arrangements and support the transition back to work at the end of their parental leave or period of ill health.
Pensions - restriction on tax relief:
In the Summer Budget, further restrictions were announced to the amount of Annual Allowance that would be available to individuals. The Annual Allowance provides an annual limit on tax relieved pension savings. It is currently £40,000 (although some individuals may be entitled to a higher figure due to transitional provisions). From 6 April 2016 the Government has introduced a taper to the Annual Allowance for those with adjusted annual incomes, including their own and employer's pension contributions, over £150,000. For every £2 of adjusted income over £150,000, an individual's Annual Allowance will be reduced by £1, down to a minimum of £10,000.
The Government also wants to make sure that the right incentives are in place to encourage saving into pensions in the longer term. The Government therefore launched a consultation in July 2015 on whether there is a case for reforming pensions tax relief. The Government is considering the responses received and will publish a response at Budget 2016.
Secondary market for annuities:
The Government will remove the barriers to creating a secondary market for annuities, allowing individuals to sell their annuity income stream. The Government will set out further details on this measure, including the framework for the consumer protection package, in its consultation response this December.
You can find out more about money matters on the Clay Shaw Butler website (under our news for business section) -
http://www.clayshawbutler.com/news/latest-news-for-business
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