Personal Income Tax
Previous Budgets saw the Chancellor of the day make a raft of changes to reduce the amount of Income Tax that people pay; which should ultimately lead to less reliance on benefits.
Aside from a new announcement regarding the taxation of dividends, which is discussed below, today’s Budget saw no other significant changes to any of the rates that have previously been announced, and the Chancellor reaffirmed the Government’s target of a £50,000 higher rate personal Income Tax threshold within the current parliament.
The main allowances and tax rates for individuals from 5 April 2017 onwards are as follows:
April 2017 sees the personal allowance set at £11,500.
Income Tax bands
April 2017 will also see the higher rate tax threshold set at £45,000, as previously announced.
Rental property – restricting loan interest relief for landlords
Despite previous calls for the ‘restriction of loan interest relief for residential landlords’ to be scrapped, no announcements came in today’s Budget!
This piece of legislation, which comes into force from 6 April 2017 onwards, restricts the amount of relief that landlords can claim on finance costs to the basic rate of tax. This means that landlords will no longer be able to deduct all of their finance costs from their property income when calculating their taxable rental profits.
This measure will be phased in gradually over a four year period from 6 April 2017 onwards.
- In 2017/2018 they will be able to deduct 75% of the finance costs incurred with the remaining 25% being available as a basic rate tax deduction.
- In 2018/2019 they will be able to deduct 50% of the finance costs incurred with only basic rate tax relief being given on the remaining 50%
- In 2019/2020 they will be able to deduct 25% of the finance costs incurred with only basic rate tax relief being given on the remaining 75%
- In 2020/2021 all finance costs incurred will be given as a basic rate tax reduction
Following the Summer Budget of 2015, Mr Osborne introduced a £5,000 tax free dividend allowance from April 2016 along with a new dividend tax system.
In an attempt to reduce the tax differential between those operating through a company compared with the employed and self-employed, today’s Budget saw the reduction in the tax free dividend allowance from £5,000 down to £2,000 from April 2018.
Although this change will still see approximately 80% of shareholders receiving their dividends tax free, it will see those whose dividends exceed £5,000 faced with an extra Income Tax bill per year of £225 for a basic rate taxpayer, £975 for a higher rate taxpayer and £1,143 for an additional rate taxpayer. This will have a significant impact on family owned companies.
Watch this space
The Chancellor today announced consultations on the taxation of ‘rent a room’ relief and the taxation of employee expenses and benefits in kind. So watch this space…………further reforms could be on the horizon!
If you have any Income Tax queries, please contact one of our Tax Specialists on 01228 711888.