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Tax efficient income planning for 2016/17

Major tax changes have been introduced for the 2016/17 financial year which anyone who is looking to be as tax efficient as possible with their income needs to be aware of. 

It is important to keep up-to-date to ensure that your money is working in the right way for you. In this blog post we bring you a quick summary on key changes that apply to both business and personal savings.

Personal allowance (PA)

Both basic rate and higher rate taxpayers are entitled to a tax-free personal allowance (PA) which is set against their income.  

For 2016/17 the personal allowance is £11,000 with the basic rate limit increased to £32,000 for 2016/17. The higher rate threshold has also increased to £43,000.

Everyone regardless of their date of birth will be automatically entitled to the same allowance. 

However, PA is reduced by £1 for every £2 of income for those with income over £100,000. This can reduce to 0.

Inheritance tax (IHT)

Passing on a property or material possessions to your spouse or grandchildren? It is important to factor in inheritance tax (IHT) paid on items worth more than £325,000.

IHT is levied at 40% on anything above that threshold. The rate can also be reduced to 36% if someone leaves over 10% of their asset to charity.

Assets disposed as a gift before you die can be exempt from IHT. Gifts can be something of value such as a property, money or possessions.

There are further exemptions and allowances involved in IHT so it is important to check which ones you and your family are entitled to.

Dividends

For business owners and directors looking to top up their salary with dividends, the old rules have been abolished. The 10% tax credit rate has been replaced with annual dividend tax allowance of £5,000. 

Dividends gained within the threshold will be tax-free while income over the limit will be taxed at the following rates:

  • basic rate: 7.5%
  • higher rate: 32.5%
  • additional rate: 38.1%.

However it is important to remember that dividends are paid at a fixed rate, meaning that shareholders are entitled to dividends in the same ratio.

Contact us

Planning your taxes accordingly and efficiently will help create the best kind of financial peace of mind. Speak to an adviser today to find out how we can help you with your tax planning.