Budget 2017 – Income Tax

Personal allowance

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

Previously announced, from 6 April 2017 the personal allowance will be £11,500 and the higher rate tax threshold will be £45,000 (or £43,000 for those North of the border in Scotland).

For taxpayers who have income over £100,000 in a tax year, the personal allowance will continue to be withdrawn.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 2017/18 people with income over £123,000 will therefore not receive any personal allowance.

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 £33,500 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 £45,000 (or £43,000 for Scottish taxpayers).

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

Another measure announced today to reduce the benefits of incorporation was the reduction of the tax free dividend allowance.

This £5,000 allowance was introduced from April 2016 to soften the blow of the new 7.5% dividend tax however it has been identified that the bulk of the taxpayers benefitting from this allowance are those who are extracting funds from their own limited companies.

The tax free dividend allowance will therefore reduce to £2,000 (but not until April 2018) and the impact will be relatively modest as it will only give rise to additional tax of £225 per year for most individuals who are extracting funds from their company via dividends.

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Oct 18

No events today
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