Income Tax changes on Investment Income for individuals from 6th April 2016

How could the Income Tax changes affect you?

The way income tax is charged on savings interest and on dividends will alter from 6th April for individuals and may mean you will now need to submit a tax return.

Savings Interest

For basic rate tax payers you will be able to receive up to £1,000 savings interest tax free and for higher rate tax payers the allowance will be £500. All such interest will now be paid gross, i.e. without the standard deduction of basic rate tax at source. Banks etc. report all interest payments to HMRC at the end of the year and so any interest received over the tax allowance will result in HMRC changing your tax code to collect the further amount due. Those of you who already submit a Self Assessment Tax Return should continue to do so.

Interest from the following sources will be included in the new arrangements: from Banks and Building Societies, from Credit Unions and National Savings, from Government and Corporate Bonds, from authorised Unit Trusts and from most types of purchased Life Annuities.

Income from ISA investments remains unchanged as this is already income tax free.

Dividends

Dividends will no longer be treated as having a 10% tax credit and so the payment you receive will be a gross receipt. Each individual will be allowed £5,000 tax free dividend income per year. Above this threshold basic rate taxpayers will pay 7.5%, higher rate tax payers will pay 32.5%, and additional rate tax payers will pay 38.1%.

Again, ISA income will be unaffected as the income is income tax free.

Please note, tax payers who did not have to submit a tax return previously, but who will receive dividend income over £5,000 per year will now need to submit an annual return with the HMRC.For more information from HMRC on completing a tax return please click here.

These changes do not affect the taxation of investment or dividend income paid to Trusts.

What should you do now?

Use the following link: http://www.hmrc.gov.uk/manuals/saimmanual/SAIM1112.htm to find further details on the tax changes and further advice and information on Self Assessment Tax Returns with regard to the tax changes in particular.

Please note that we are not tax advisors so you should contact an accountant in the first instance but if you have any queries or concerns about these tax rises and Trusts, Probate and Wills please contact the Private Client Team:

Henry Anstey on 01733 882800

David Read on 01733 882800

Paddy Appleton on 01832 273506.

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This article has been prepared for general interest and information purposes only; it does not constitute legal advice and should not be relied on as such. While all possible care has been taken in the preparation of this article, no responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by the firm or the authors.