Personal Taxation

Income tax – personal allowances and basic rate band

The personal allowance for 2016/17 will rise from £10,600 to £11,000 and the basic rate band will rise by £215 to £32,000. From 2017/18 the personal allowance will increase to £11,200 and there will be a further increase in the basic rate band to £32,400. Once the personal allowance reaches £12,500, it will be uprated in line with the national minimum wage.

Dividend taxation

From 6 April 2016 the 10% dividend tax credit will be abolished and there will be a new dividend tax allowance of £5,000 a year. New rates of tax on dividend income will apply above the allowance at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. The effect is to increase the rate of tax on dividends above the new allowance by 7.5%.

Non-domicile status

Anybody who has been resident in the UK for more than 15 of the past 20 tax years will be deemed to be domiciled in the UK for all tax purposes including inheritance tax. This will apply from April 2017 and a technical consultation will be published later this year. From 6 April 2017, individuals who are born in the UK to parents who are domiciled here will no longer be able to claim nondomicile status while they are resident in the UK. There will be no introduction of a minimum claim period for the remittance basis charge as a result of other reforms to the taxation of non-UK domiciled individuals. The government had previously proposed that non-domiciled individuals would have to claim the remittance basis for at least three years.

Employment taxes and salary sacrifice

The government will actively monitor the effect on tax receipts of salary sacrifice schemes that reduce employment taxes.

THINK AHEAD- Make sure you use your ISA allowance to protect yourself from the new tax on dividends.

Residential landlords – reform of the wear and tear allowance

The wear and tear allowance will be replaced from April 2016 with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings. Capital allowances will continue to apply for landlords of furnished holiday lets.

Residential landlords – restricting finance cost relief

The relief on finance costs (e.g. interest) that individual landlords of residential property can receive will be limited to the basic rate of tax. The restriction will be phased in over four years, starting from April 2017.

Rent-a-room relief

From 6 April 2016 the level of rent-a-room relief will be increased from £4,250 to £7,500 a year.

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