The start of a new year and tax return is coming, along with all the tax changes that have been made this year. Yesterday, we posted part one of this series. To find out the first half of what to expect in the upcoming tax year returns refer back.
So what else?
There will be a reduction in lifetime allowance. For the 6th April this year the lifetime allowance was reduced from £1.25 million to £1 million. The rate of tax you are required to pay on your pension savings above your lifetime allowance depends on how the money is paid to you. If you get it as a lump sum the rate is 55%, however if you get it in any other form the rate is 25%.
Another change to expect in your next tax return is an end to National insurance ‘contracting out’. From 6th April 2016 individuals were no longer able to contract out of the additional state pension. The end of contracting out has meant that those who previously qualified for a reduced rate by way of a1.4% rebate will have to pay more national insurance this year.
You can tell if you’ve contracted in the past by checking payslips and checking the national insurance line. If you’ve contracted out it has the letter D, E, L, N or O next to it. The letter ‘A’ means your not contracted out.
There are also changes to be seen in investing. A new dividend tax allowance will affect all individuals in receipt of dividends, whether that is from a company as part of a remuneration strategy or from investments that are not held within an ISA or pension. Dividend tax credit rules will be replaced with a tax-free allowance. This entitles all individuals to the first £5,000 of income from dividends each tax year free from taxation. However, dividends over this level will be subject to tax and for basic-rate taxpayers this will be 7.5 %, while for higher-rate taxpayers it will be 32.5% and additional-rate taxpayers will pay 38.1%.
A tax-free childcare scheme will be introduced during early 2017. Working parents will be able to get up to £2,000 a year, per child, in tax relief to help cover childcare costs. This will replace the existing systems that allows parents to buy ‘childcare vouchers’ from their employer that enable each parent to pay for childcare worth up to £243 a month.
If you’re on the old system you don’t have to switch over. But once you’ve moved to the new one, you wont be able to move back again.
One change that has popularly been talked about in the press this year is changes to student loans. Maintenance loans have replaces maintenance grants. From the beginning of the 2016-17 academic year in September, maintenance loans have replaced grants. The loans will allow students to receive £8,200 per year, which is £766 more than the grant allowed. However, the money has to be repaid once the graduate earns more than £21,000 a year.