Tax planning for individuals

Tax lock

Legislation has been introduced to set a ceiling upon the main rates of income tax and NI for the duration of the current Government.

Whilst this allows some degree of certainty, this goes against the Parliamentary principle that Parliament cannot be bound by the Government of the day.  Therefore, it is always possible that this could be reversed simply by introducing a further piece of legislation.  However, given the Conservative majority and the intention behind the policy, it is likely that this will remain in place for the whole term.

Taxation of individuals

For 2016/17, the personal allowance will rise to £11,000, whilst the basic rate band will be £32,000.  In this way, an individual must have income of over £43,000 before higher rate tax becomes payable.  For 2017/18, the personal allowance will be £11,500 and the basic rate band £33,500.  The aim is to increase the personal allowance to £12,500 and the overall threshold before becoming a higher rate taxpayer to £50,000 by the end of this Parliament.

Rent-a-room relief

From 6 April 2016, rent-a-room relief will increase from £4,250 to £7,500.  This applies where an individual rents out a room in their only or main residence, allowing them to receive the rent tax free.

Personal savings income

From 6 April 2016, basic rate taxpayers will not pay tax on the first £1,000 of savings income from banks, building societies and similar institutions, an effective tax saving of £200.  For higher rate taxpayers, the first £500 will be exempt, also a saving of £200.  The exemption will not be available for additional rate taxpayers.

As part of the implementation of this exemption, banks and building societies will no longer automatically deduct tax at source.

This should be considered in light of the reduction in the savings rate band announced in the 2014 Budget and that took effect from 6 April 2015.  This is a little known piece of legislation: to the extent that the first £5,000 of your taxable income is from interest, it is taxed at 0% (before 2015, the rate was 10%).  This has never impacted many people simply because employment income is taxed first and usually utilised the first £5,000 of the basic rate band.  However, there is scope for planning here.