04 March 2016

The new tax year is now just over a month away and there are some significant changes to tax that will be coming into effect on 6 April 2016. Here are some of them:-

Dividend Tax

A new dividend tax regime will be brought in with dividend tax credits being abolished and individuals being able to receive £5,000 of dividends free of tax annually. Thereafter, dividends will be taxed at 7.5%, 32.5% and 38.1%, depending on whether the individual is a basic rate, higher rate or additional rate tax payer. Tax payers who will be adversely affected by this new regime could consider transferring shares to their spouse to equalise holdings or using an ISA.

Interest on Savings

On 6 April the Personal Savings Allowance will be introduced. Basic rate taxpayers will be able to earn £1,000 of interest free of tax and higher rate tax payers £500 of interest tax free. Additional rate tax payers will not receive any allowance. The Government estimates that this will take 95% of savers out of the tax remit. Married couples who have large sums in savings should again consider equalising their savings pot so that both allowances can be taken advantage of. ISAs should not be forgotten about either as they provide an opportunity to keep savings tax free on an ongoing and increasing basis year after year.

Property Income

For buy to let landlords the 10% wear and tear allowance for furnished lets will be abolished from 6 April. From that date only the actual cost of replacing furnishings can be claimed. Landlords claiming the wear and tear allowance this tax year should consider delaying any purchases until after 6 April.

LBTT

In another blow to buy to let landlords and to potential second home owners, there will be a supplementary 3% LBTT charge from 1 April. LBTT is the Scottish form of the Stamp Duty Land Tax. Settling transactions of this type before 1 April can therefore lead to a significant saving.

Renting a Room

For anyone with a lodger, the “rent a room” relief will increase on 6 April from £4,250 to £7,500.

Pensions

The lifetime allowance for pensions will decrease from £1.25 million to £1 million on 6 April. Anyone with pension savings nearing the limit of £1.25 million can protect their pension but they must not make any further contributions to any pension plan. Additional rate tax payers will also see their maximum contribution limit decreased so should maximise their contribution this tax year.

Budget 2016 will take place on 16 March 2016 and no doubt will bring about further changes to tax. For advice on how these changes will affect you or for personal tax advice on any other matter please contact Ross Brown, Partner rbr@bto.co.uk T. 0141 221 8012