Budget 2015 – Income Tax

Personal Allowance

The Personal Allowance will rise to £10,600 from 6 April 2015.

For individuals born before 6 April 1938, the personal allowance will be £10,660 from 5 April 2015.  This allowance will be reduced for people with income over £27,700 in 2015/16, but will not be lower than £10,600.

From April 2016, the personal allowance will be the same for everyone of every age.  It will rise to £10,800 from April 2016 and again to £11,000 from April 2017.

For taxpayers who have income over £100,000 in a tax year, the personal allowance will continue to be withdrawn.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, so in 2015/16 people with income over £121,200 will not receive any personal allowance.  The £100,000 threshold will remain unchanged in 2016/17 and 2017/18.


Marriage Allowance and Married Couples’ Allowance

The new Marriage Allowance will come into effect from 6 April 2015.  An individual whose income is below the £10,600 personal allowance can transfer up to £1,060 of their unused allowance to their spouse or civil partner.  They can do this so long as their spouse or civil partner doesn’t pay more than the basic rate of income tax.  This will potentially save the tax-paying spouse up to £212 in 2015/16.

To benefit from the Marriage Allowance, you have to register by the end of the tax year (by 5 April 2016).  People can register at any point during the tax year and receive the full allowance.  The registration process is done online at gov.uk/marriageallowance.

The marriage allowance will go up to £1,080 in 2016/17 and £1,100 in 2017/18.

If you are married or in a civil partnership and one of you was born before 6 April 1935, the old Married Couple’s Allowance still applies as before In 2015/16,

it will be worth between £322 and £835.50, depending on the level of your income.  People whose income is below £27,700 will receive the full allowance, those with income above this amount will receive less, with a minimum of £322.  The Married Couple’s Allowance will increase with inflation in 2016/17 and 2017/18.


Income Tax Rates

The basic rate of income tax remains at 20% and in 2015/16 will be applied to the next £31,785 of income after the personal allowance.

There is a special rate for interest income – see below.

The basic rate band will increase by inflation over the next two tax years, to £31,900 for 2016/17 and £32,300 for 2017/18.

This means that the higher rate tax threshold – the point at which you start to pay higher rate tax (at 40%) will be £42,385 in 2015/16, then £42,700 in 2016/17, then £43,300 in 2017/18.

The additional rate of 45% will continue to apply to income of over £150,000 in 2015/16.  This threshold should also apply to the 2016/17 and 2017/18 tax years.


Savings And Interest

It has already been announced that for individuals on low incomes, the starting rate for tax on interest will be reduced from 10% to 0%.  In 2015/16 this will apply to taxpayers whose total income is below £15,600.  This is the personal allowance of £10,600, plus the 0% starting rate for interest of £5,000.

Taxpayers who have total income of over £15,600, but whose non-interest income is below £15,600, will have a 0% tax rate on some of their interest income.  So for example, if your total income is £16,000 and £2,000 of that is bank interest, the 0% rate will apply to the first £1,600 of your bank interest.  The 20% rate will apply to the remaining £400 of interest.

A new personal savings allowance is to be introduced with effect from 6 April 2016.  This will affect the tax rate for interest paid on bank and building society accounts which are not ISAs.

For people with income of under £42,700 in 2016/17, this will exempt the first £1,000 of interest income from tax.

People with total income of £16,800 or less in 2016/17 won’t have to pay any tax on their interest income, because the first £10,800 of their general income will fall within the personal allowance.  If the rest of their income is bank interest, £1,000 of this within the personal savings allowance and the next £5,000 will fall within the 0% starting rate for bank interest.

People with income of between £42,701 and £150,000 will have a personal savings allowance on the first £500 of their bank interest.

The personal savings allowance and starting rate for tax on interest will only affect the tax rate on your interest income, not the tax on your other income.

From April 2016, banks and building societies will stop automatically deducting 20% income tax from interest on non-ISA accounts.

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Jan 18

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