Mixed Budget News

masonic

Peter167 wrote: »

So is the £5K saving allowance not valid in 2016-17? If not, where are the details of this?

No, the £5k savings interest allowance is currently in force. It's the new £1k savings allowance, the £5k dividend allowance and the personal allowance increase to £11k that are being introduced in 2016-17.

colsten

Peter167 wrote: »

So is the £5K saving allowance not valid in 2016-17? If not, where are the details of this?

I believe the 0% starting rate for low income earners will stay. So if your total income is less than £17,000 in 2016-17, no tax will be due on any savings interest.

The 0% starting rate for savings has always been, and will remain, irrelevant if your total income is higher than your allowances (£17,000 in 2016-17).

SnowMan

colsten wrote: »

I believe the 0% starting rate for low income earners will stay. So if your total income is less than £17,000 in 2016-17, no tax will be due on any savings interest.

The 0% starting rate for savings has always been, and will remain, irrelevant if your total income is higher than your allowances (£17,000 in 2016-17).

Good point.

While I am not sure it is 100% clear, the indications are you and TCA are right that the personal savings allowance is on top of the £5,000 savings band for 2016/2017.

Why else would it say in this document (edit: as TCA has already pointed out)

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414026/Savings_factographic_final.pdf

That means from April 2016, you won’t have to pay tax on your interest if your taxable income is less than £16,800.

Obviously that was written before the increase of the personal allowance for 2016/2017 to £11,000 from £10,800.

It is a shame that the examples at the bottom don't include one where someone is earning below £15,800 and has savings interest above £1,000.

masonic

What is still unclear (I think) is whether someone who earned exactly £11,000 through employment, £5,000 of dividend income and £6,000 from savings interest would pay any tax.

SnowMan

masonic wrote: »

What is still unclear (I think) is whether someone who earned exactly £11,000 through employment, £5,000 of dividend income and £6,000 from savings interest would pay any tax.

The £5,000 savings band is currently (2015/2016) based on someone having income excluding dividend income below £15,600.

So doesn't that suggest that in 2016/2017 in that example £5,000 of the savings interest is covered by the £5,000 band, £1,000 by the new savings allowance and the dividends are covered by the £5,000 dividend allowance. So no tax to pay?

Only a hidden change would change that conclusion?

charlieboycat

SnowMan wrote: »

The £5,000 savings band is currently (2015/2016) based on someone having income excluding dividend income below £15,600.

So doesn't that suggest that in 2016/2017 in that example £5,000 of the savings interest is covered by the £5,000 band, £1,000 by the new savings allowance and the dividends are covered by the £5,000 dividend allowance. So no tax to pay?

Only a hidden change would change that conclusion?

I agree. I can find no authority for the statement in http://www.moneysavingexpert.com/savings/tax-free-savings that: "Then, from next April, the personal savings allowance will supersede these tax-free savings rules, BUT anyone who still qualifies then under these tax-free savings rules will get a higher £2,000 personal savings allowance for that year, instead of the £1,000 that will apply for other basic-rate taxpayers."

The Chartered Institute of Tax says otherwise: see http://www.tax.org.uk/tax-policy/newsdesk/2015/LITRG_PR_tax_free_savings_income

averageguy11

jimjames wrote: »

Just seen that dividend tax is changing and you'll now get a £5000 annual allowance. On the bad news, BTL income is being taxed more with restriction on interest tax relief.

Will be interesting to see how it pans out

The allowance for renting a room was increased significantly

colsten

masonic wrote: »

What is still unclear (I think) is whether someone who earned exactly £11,000 through employment, £5,000 of dividend income and £6,000 from savings interest would pay any tax.

The total income of that person would be 11 + 5 + 6 = 22K, above the personal allowances. Therefore they do not qualify for the 0% starting rate on savings and would have to pay BR tax on 5K of savings interest.

The £5K on savings are not an allowance but it is the amount to which the starting tax rate (now 0%) applies only if your total income is not more than the total of the allowances. Allowances from April 2016 are personal allowance (£11K) + dividend allowance (£5K) + savings interest allowance (£1K) = £17K (there might be some other allowances, such as age or blind person allowance but let's ignore these for simplicity).

I am not a tax expert but this explanation makes sense to me, and it is supported by the stuff you can find in various places on government/HMRC web pages. Perhaps some tax professional can confirm.

colsten

averageguy11 wrote: »

The allowance for renting a room was increased significantly

I think you mean the tax free amount for letting one or more rooms in hour main residence? That's very different to letting residential property you don't live in and for which you might have a BTL mortgage, which is what jimjames is talking about.

talexuser

I think the savings allowance has been solved now. But I am still unsure about the dividends in this scenario:

Say you are a basic taxpayer below the higher rate threshold, say income is £41000 - the threshold is £43000, and then get £4000 of unwrapped dividend income.

Does this mean £2000 of the dividend is tax free, but £2000 gets taxed at 32.5% but you avoid 40% income tax on the excess?

Or do you lose all the allowance so tax is £2000 at 7.5% and £2000 at 32.5%, but still avoiding 40% on the excess?