The existing dividend tax credit is being abolished from April 2016 and a new dividends allowance of £5,000 a year is being introduced.
Tax on dividend income above the allowance will be charged at:
- 7.5% for basic rate taxpayers
- 32.5% for higher rate taxpayers
- 38.1% for additional rate taxpayers.
Savings and interest
A personal savings allowance is being introduced from 6 April 2016 to remove tax from up to £1,000 of savings income from a basic rate taxpayer and up to £500 for higher rate taxpayers. Additional rate taxpayers will receive no allowance.
Interest from open-ended investment companies, authorised unit trusts, investment trust companies and peer-to-peer lenders may be paid without deduction of income tax from April 2017.
Lifetime ISA and ISA limit
A new lifetime ISA will be available for adults under the age of 40 from April 2017. Individuals will be able to contribute up to £4,000 per annum and will receive a 25% state bonus.
Funds, including the bonus, can be used to purchase a first home at any time after the first annual anniversary of opening the account. Funds may be withdrawn from the age of 60.
The overall annual ISA subscription limit will increase from £15,240 to £20,000 from 6 April 2017.
Help to Save
Individuals in low income working households will be able to save up to £50 per month into a Help to Save account and receive a 50% government bonus after 2 years.
Account holders can then choose to continue saving under the scheme for a further 2 years. The scheme will be introduced no later than April 2018 and will be open to all adults in receipt of universal credit with minimum weekly household earnings equivalent to 16 hours at the national living wage or those in receipt of working tax credits.
A number of minor changes are being made to the pensions tax rules to ensure that they operate as intended following the introduction of pension flexibility in April 2015.
The changes will be effective from the day after the date of royal assent to Finance Bill 2016. They will:
- replace the 45% tax charge on serious ill-health lump sums paid to individuals who have reached the age of 75 with taxation paid at the individual's marginal rate
- enable money purchase pensions in payment to be paid as a trivial commutation lump sum
- remove the requirement that a serious ill-health lump sum can only be paid from an arrangement that has never been accessed
- enable dependants with drawdown or flexi-access drawdown pension who would currently have to use all of this fund before age 23 or pay 45% tax charges of up to 70% on any lump sum payment to continue to access their funds as they wish after their 23rd birthday.
Reduction of lifetime allowance
As announced at Budget 2015 the pensions lifetime allowance is reducing from £1,250,000 to £1,000,000 with effect from 6 April 2016.
Enterprise investment scheme and venture capital trusts
Changes are being made to ensure that the enterprise investment schemes (EIS) and venture capital trusts (VCT) legislation introduced in Finance (No 2) Act 2015 works as intended.
A new condition will be introduced from 6 April 2016 to clarify the non-qualifying investments a VCT may make for liquidity management purposes.
The methods of determining the 5 year period for the average turnover amount and the relevant three preceding years for the operating costs conditions will be clarified for both EIS and VCTs to ensure that the most recently filed accounts of a company are generally used to determine the end date of the relevant period.
The operative date will be 18 November 2015, although an investee company may elect to apply the existing legislation for investments received between 18 November 2015 and 5 April 2016 inclusive.
Contact us to discuss your savings and pensions.