Autumn Budget 2017

Income Tax

 

Personal Allowance

The government’s long term plan has been to extend the tax free personal allowance to £12,500 and the point at which individuals pay higher rate tax to £50,000.

From April 2018 the personal allowance will increase to £11,850 and the higher rate tax threshold will increase to £46,350 (NB: Scotland will announce their plans separately).

For taxpayers who have income over £100,000 in a tax year, the personal allowance will continue to be withdrawn.  £1 of the personal allowance is lost for every £2 of income over the £100,000 threshold, creating the infamous “60% tax band”.  In 2018/19 people with income over £123,700 will therefore not receive any personal allowance.

 

2017/18 Income Tax Rates

The basic rate of income tax remains at 20% for most income and 7.5% for dividend income.  These rates apply to the next £34,500 of income after the personal allowance.

The higher rate of tax remains at 40% for most income and 32.5% for dividend income.  These rates apply to income in excess of £46,350.

The additional rate of tax which applies to income over £150,000, remains at 45% for most income and 38.1% for dividend income.

 

Tax Free Dividend Allowance

The current £5,000 tax free dividend allowance was introduced from April 2016 to soften the blow of the new dividend tax.  However as previously announced, this will reduce to £2,000 with effect from 6 April 2018.

 

Marriage Allowance

Introduced in April 2015, marriage allowance allows the lower earning spouse to transfer 10% of their personal allowance to the higher earning spouse if this is not being utilised.  The transferor must have income less than the personal allowance, and the transferee must have income less than the higher rate tax threshold to qualify.

Currently the transferor is required to make a claim to transfer their allowance.  Measures are being introduced to allow claims to be made on behalf of deceased taxpayers.  These claims can also be backdated up to four years.

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Feb 23

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