More tax breaks from 6 April
From 6 April 2016, if you’re employed, you’re likely to see some changes to your pay slip. Here are some of the possible reasons and ways you can reduce your personal tax bill.
The Personal Allowance is the amount of income which may be earned before paying tax. For the 2015/17 tax year, this has increased from £10,600 to £11,000. This means that an additional £400 of your annual income will now be tax free, adding around £33 to your net annual income. However, if your income exceeds £100,000, you'll see this allowance being gradually reduced.
From 6 April 2016, the Marriage Allowance allows you to transfer £1,100 of your Personal Allowance to your husband, wife or civil partner. This may mean that more of their income is subject to a lower rate of Income Tax.
To benefit as a couple, the lower earner needs to have an income of £10,600 or less and their partner an income between £10,601 and £42,385. You both also need to be born on or after 6 April 1935, otherwise the previous Married Couples Allowance will apply.
Individual Savings Accounts & Junior Individual Savings Accounts
An Individual Savings Account (ISA) is a tax efficient way to save or invest. Each tax year, there's a limit to the amount you can deposit into an ISA or Junior ISA (JISA). For the 2016/17 tax year, your annual tax free limit in an ISA is £15,240 which may be invested in Stocks and Shares ISA, Cash ISA or a combination of the two. A Cash ISA is available for individuals over the age of 16 and a Stocks and Shares ISA is available to those over 18.
A child can have a Cash JISA, Stocks and Shares JISA or both at any one time. The current annual JISA limit is £4,080.
In both cases you must live in the UK.
Pensions continue to provide tax relief
Provided you’re a UK tax payer, you will receive tax relief on anything you pay into your pension up to the amount you earn or your annual allowance (currently £40,000 per tax year), depending on which is lower. If you pay more into your pension than you're allowed, you may incur a tax charge to recover tax relief over and above what you’re entitled.
However, if you haven’t used up all your allowance, you may be able use up to three years’ unused allowances.
Depending on your personal circumstances, you may be subject to a lower annual allowance.
Further information on pension allowances can be read in this flyer. This is a complicated subject and you may wish to speak to a financial adviser or further information may be obtained from HMRC.
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. You can find more information on 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.