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The thing about tax is – it is always up to you to make sure you are paying the right amount. An employer might do a lot of the hard work for you, but as soon as you have savings, or income from sources other than your employer, things can start to get a little complicated.

 

But if you keep your eye on the latest changes, and stay mindful of what can be taxed (income from a buy to let property, or from a redundancy pay out, for example), you should avoid nasty surprises in the form of demands for immediate payment from HMRC. No one wants those.

Here is what changed on April 6 2016.

 

Personal Allowance

The income that all UK taxpayers can earn before they start paying tax - the Personal Allowance - has increased to £11,000 from £10,600 last year.

You pay 20% tax on the next £32,000 beyond the Personal Allowance and then higher rate income tax of 40% on income above £43,000.

Income above the higher rate tax threshold is taxed at 40% up to £150,000, and any income above this is taxed at 45%.

Key number: £11,000 – this is the amount you can earn tax-free annually. 

 

Savings 

Many people will pay less tax on their savings thanks to a new Personal Savings Allowance. This allows basic-rate taxpayers to receive £1,000 of savings interest tax-free each year, wherever they choose to save their money. Higher-rate taxpayers can receive £500 interest each year tax-free. Anyone who earns more than £150,000 a year continues to pay tax on all their savings interest.

Need to know: The introduction of the Personal Savings Allowance means that banks and building societies will no longer automatically apply a 20% tax on savings interest. If you need to pay tax on your savings, it will be collected through your pay packet or a self-assessment tax return.

Key number: £1,000 – the amount of interest basic-rate taxpayers can earn tax-free every year.

 

Dividends

Dividends are used by many companies to distribute profits to shareholders and are often paid twice a year. A kind of ‘bonus’ for people who choose to hold rather than sell shares in a company. A new Dividend Tax Allowance will mean that all investors can receive £5,000 of dividends per year tax-free.

Basic-rate taxpayers will pay 7.5% on sums above £5,000 a year. Higher-rate taxpayers will pay 32.5% and additional-rate taxpayers, in the 45% income tax band, will pay 38.1%.

Need to know: Dividends and interest received in ISAs and pensions will continue to be exempt from tax.

Key number: £5,000 – value of dividends you can earn tax-free

 

Pensions

The Lifetime Allowance, the maximum amount that the government allows you to invest tax-free in a pension over your lifetime, has been reduced from £1.25m to £1m.

The Annual Allowance has also been cut for higher earners. This is the maximum pension contribution you can make each year on which tax relief is available.

The standard Annual Allowance sets the maximum at £40,000 or 100% of your annual earnings, whichever is lower. The Annual Allowance will now be tapered for those with an income of over £150,000. For every £2 of income over £150,000 the Annual Allowance is reduced by £1 until it reaches a low of £10,000.

Key number: £1m

 

ISAs

Previously, if you withdrew money, then put some back in, you would lose the tax-free status of the money put back in. Savers are now able to take money out of a cash ISA or cash held in an investment ISA and put it back later in the year without losing any of their tax-free entitlement.

The annual ISA allowance for the current tax year is £15,240.

Need to know: Repayments must be made in the same tax year as the withdrawal.

Key number: £15,240

 

What is Money Means?

Money Means is a news and information series written by independent financial and consumer journalists and experts. FSCS launched Money Means in 2016 to help give people clear and useful information about personal finance, to increase their understanding and confidence when dealing with money.

9/8/2017 2:31:36 PM