Finance Bill 2016 brought in a number of changes which affect tax year 2016/17 commencing 6 April 2016 which will affect savers.
Deposit interest no longer has tax deducted at source.
There is a Starting Rate Band (SRB) of £5,000 at which interest is taxed at 0% but it is ONLY available on the first £5,000 of taxable income, so if you already have other taxable income of more than £5,000 on income such as employment, pensions or property it will NOT be available to you.
There is a new Personal Savings Allowance (PSA) available at which interest is taxed at 0%:
- £1,000 if you are a Basic rate taxpayer
- £500 if you are a Higher rate taxpayer
- Nil if you are an Additional rate taxpayer
Dividends no longer come with a tax credit.
There is a new £5,000 nil rate band – i.e. the first £5,000 of dividends are taxed at 0%
Dividends over £5,000 are taxed at 7.5%, 32.5% or 38.1% (basic rate, higher rate, additional rate)
The Personal Allowance for 2016/17 is £11,000 i.e. the level of income not taxed at all. The SRB, PSA and Dividend nil rate band all come after the personal Allowance is applied.
How will any tax on savings be collected?
If after the allowances described above you still have taxable interest then if you complete a Self Assessment Tax Return already, any additional tax due will be calculated through this process and paid in the January following the end of the tax year.
If you do not complete a tax return HMRC will adjust your tax code to ensure tax is paid on any interest not covered by the new allowances.
With regard to dividends over the £5,000 nil rate band, if you don’t already complete a tax return you will need to notify HMRC to change your tax code.
Do check your PAYE coding notices or seek advice as HMRC cannot be relied on (unfortunately !) to get them right.
If you have any questions about how these changes might affect you, do get in touch.