The personal allowances for 2017 have been announced and have been increased for all tranches of earnings from the allowance for zero tax to the 40% earnings threshold. This should mean a lower tax bill for most people although obviously it depends on whether earnings have increased in a similar manner.
The personal allowances for 2017 are as follows:
Personal allowance at zero rate tax – £11,200
Basic rate tax allowance – £32,400
Therefore the Higher rate tax threshold increases to – £43,600
The aim is to raise the higher rate tax threshold to £50,000 by the end of parliament and the personal allowance to £12,500 at the same point.
By 2017 we are referring to the tax year that runs from 6 April 2017 to 5 April 2018.
The basic rate of tax for 2017/18 is currently set at 20% (at time of publishing August 2015) and the higher rate tax is 40%. In addition there is an additional tax rate of 45% for earnings over £150,000.
In recent years there have been a lot of changes to personal allowances and indeed other allowances that affect personal income. Not only has the personal allowance increased significantly and more recently a tax free savings allowance was introduced, now there is another change to the tax charged on dividend payments to individuals.
The changes are a little bit complex and will affect quite a lot of people receiving dividend income, and not always for the better.
There is a new allowance of £5,000 per person per year on dividends which is tax free, but any dividend income over this amount will be taxed at a higher rate than previously, depending on the tax bracket of the individual.
A basic rate tax payer will need to pay 7.5% tax on amounts over £5,000, a higher rate tax payer will need to pay 32.5% and an additional rate tax payer will need to pay 38.1%.
These rates are effective from April 1016.
It may be useful to note that the new £5,000 savings tax free rate is in addition to this (for those who have low enough incomes) and so it may be worth getting some advice as to whether some shares should be switched to a different investment vehicle to minimise tax.