Invest some time to understand tax changes

Mark Sheen examines recent changes to the treatment of investment income

“I have investment income. I am aware things have changed. I am just not sure what has changed and how it affects me…”

Tax legislation is increasingly complex and features many ‘moving targets’, so here is a brief summary of recent changes which may affect you. Some of these points may be things that are worth discussing with your tax advisor:

Dividend Allowance

From 6 April 2016, the first £5,000 of your annual dividend income is tax free. This allowance applies irrespective of your level of income and the rate at which you pay tax.
Talk to your accountant if:  you are married and you or your spouse has annual dividend income in excess of £5,000, whilst the other spouse has less than £5,000. There may be scope to transfer some investments, without incurring a tax charge, to achieve greater income tax efficiency.

New Dividend Tax Rates

For annual dividend income in excess of £5,000 new rates of tax apply.
Talk to your accountant if: you anticipate annual dividend income in excess of £5,000 for 2016/17 and you would like an estimate of the impact on your annual tax payments.

Personal Savings Allowance and the 0% Starting Rate on Savings Income

You may have noticed that, since 6 April 2016, banks and other institutions have stopped deducting tax of 20% from interest they pay to you. This doesn’t necessarily mean, however, that you no longer need to pay tax on interest and other savings income.

Basic rate taxpayers can now receive up to £1,000 in savings income tax-free, whilst higher rate taxpayers will be able to receive up to £500 (with any excess taxable via your self-assessment tax return at 20% or 40%).
This new personal savings allowance is on top of the 0% starting income tax rate introduced last year. This rate applies on up to £5,000 of annual interest income for savers with relatively low employment and pension income.

Talk to your accountant if:  if you want to know how far you can benefit from the dividend and personal savings allowances, with a view to structuring your investments to offer the maximum tax- free annual income.

Marriage Allowance

This measure (introduced on 6 April 2015) allows you to transfer up to £1,050 (£1,100 since 6 April 2016) of unused annual tax-free personal allowance from a non-taxpayer to their spouse, who pays tax at basic rate.

Talk to your accountant if: you are married and your circumstances are such that you may be able to benefit from this allowance.

Charitable Donations – Watch Out if You Tick the Gift Aid Box!

If you are in the habit of making donations to charities, you probably tick the ‘Gift Aid’ box to identify yourself as a UK tax payer. That way, your chosen charities can claim some extra income from the government. Please be aware that the extra amount claimed by the charities must be covered by the amount of tax you paid in the tax year of the donations.

If you no longer have a UK tax liability, then you should be cautious about ticking the Gift Aid box and consider withdrawing existing declarations for ongoing donations. Any shortfall between your annual tax liability and the amount claimed by the charities must be met by you personally.
Talk to your accountant if:  you make, or are planning to make, charitable donations and believe that the new rules may have reduced your tax liability.