Help for savers and investors
A Personal Savings Allowance on interest
From 6 April 2016 you now have a Personal Savings Allowance - this means that any interest you receive (usually from bank and building society deposits) will be paid without any tax taken off. However, depending on the amount of interest you receive, you may still be liable for tax. If you're a basic rate tax payer you can now receive up to £1000 of interest tax free or £500 if you're a higher rate taxpayer. Additional rate tax payers will not benefit from a Personal Savings Allowance.
Capital Gains Tax reduced
The reduction of Capital Gains Tax (CGT) that came into effect from 6 April 2016 was welcomed by small investors who would previously have had to pay CGT on profits from the sale or disposal of an asset that had increased in value. Certain examples include: the sale of most personal possessions worth more than £6,000 (excluding cars), business assets, property that isn’t a main home and shares outside of tax free wrappers, such as ISAs.
You don’t have to pay CGT on all profit you make – the first £11,000 is tax free and then you'll now pay tax at either 10%, if you are a basic rate tax payer, or 20% for higher rate taxpayers. These rates have reduced from the previous 18% and 28% respectively. The reduction in CGT does not apply to the sales of residential investment property or second homes which will continue to be taxed at 18% (lower rate tax payers) or 28% (higher rate tax payers).
Dividend tax system changed
The Chancellor announced in his Summer 2015 Budget that changes were planned for the tax treatment of dividends (money paid to shareholders by companies). From 6 April 2016 everyone now has a ‘dividend nil rate band’ of £5,000 which replaces the fairly complex dividend tax credit system. Amounts received above this will be taxed according to your rate of tax: 7.5% (basic), 32.5% (higher) or 38.1% (additional). It’s worth noting though that all dividends will still be added to total income in working out your Income Tax bill.
Lifetime ISA announced
The Government is still in consultation about its new Lifetime ISA (LISA), but the early signs are likely to be attractive to long term savers. LISA is designed to help savers to purchase a first home or those planning their retirement. You will be eligible to join between 18 and 40 and can draw funds to buy a home at any stage without penalty. If you plan to use the LISA as a long term investment, you will need to stop saving by age 50 and won’t be able to access your money penalty free until you are aged 60.
Tax rules require careful consideration and may not reflect your individual circumstances. The above is based on our understanding of current taxation, legislation and HM Revenue & Customs practice, all of which is liable to change without notice. For more information please visit the gov.uk website.
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Tax information and allowances
Government tax rules and regulations that may affect you if you are saving, investing or have a pension plan.
Tax benefits of saving in a pension
Saving in a pension is a tax-efficient way of building up an income for retirement.