Tax and benefit changes 2016/17

Here are the major changes planned for the new tax year.

The new tax year begins on 6th April and that means changes to a range of taxes and benefits.

Here are some you should know about:

Income Tax

The tax-free personal allowance, which is the amount you can earn before paying any Income Tax, will rise from £10,600 to £11,000.

The higher rate (40%) tax threshold will rise from £42,385 to £43,000.

The age-related allowance, which previously increased the tax-free allowance of low-earning pensioners, will come to an end in 2016/17. From April 2016 there will be no extra allowance for taxpayers aged over State Pension age.

Marriage Allowance

The Marriage Allowance is rising from £1,060 to £1,100.

This tax break allows those that are married or in a civil partnership to transfer a portion of their tax-free personal allowance to their partner, but only if both partners don’t pay more than the basic rate of Income Tax.

National Living Wage

A new National Living Wage of £7.20 per hour will be introduced for employees aged 25 or over.

Workers under 25 will continue to get the National Minimum Wage.

National Insurance

National Insurance (NI) tax rates remain unchanged.

However, from 6 April ‘contracting out’, which allows those paying into a company pension scheme to pay a reduced rate of NI, will end. Employees who previously qualified for a reduced rate will see this rise.

The new NI thresholds will be as follows:

• Class 1 National Insurance (employees) - payable on income between £8,060 and £43,000 at 12%. Above £43,000 the reduced rate of 2% applies.
• Class 2 National Insurance (self-employed) - payable on income above £5,965 at £2.80 per week.
• Class 4 National Insurance (self-employed) - payable on income between £8,060 and £43,000 at 9%. Above £43,000 the reduced rate of 2% applies.

Tax credits

The tax credit income rise disregard, which is the limit your household income can increase in a tax year before it impacts the calculation of your entitlement for that year, will fall from £5,000 to £2,500.

ISA allowances

There are no changes to tax-free annual ISA allowances for 2016/17.

The ISA subscription limit will remain at £15,240 while the Junior ISA and Child Trust Fund limit will remain at £4,080.

Personal savings allowance

Savers will get a new personal savings allowance from April.

The first £1,000 of savings interest will be tax-free for basic rate taxpayers, while the first £500 will be tax-free for higher rate taxpayers.

Dividend Tax

From April there will be a new £5,000 tax-free dividend allowance for investors.

Dividends paid above this level will be taxed according to your tax bracket. The rates for basic and additional rate taxpayers are changing from April 2016 as the table below shows.

Capital Gains Tax

The rates of Capital Gains Tax – which is a levy on the profits made from the sale of assets – will be cut for some from April.

The CGT rate for basic rate taxpayers will fall from 18% to 10%, while the rate for higher rate taxpayers will fall from 28% to 20%.

However, the rates of CGT payable on residential property sales will remain unchanged at 18% for basic rate taxpayers and 28% for higher rate taxpayers.

The CGT tax-free allowance will remain unchanged at £11,100.

Stamp Duty

From 1st April, people looking to buy a second home and those investing in buy-to-let properties will have to pay a 3% surcharge on existing Stamp Duty Land Tax rates.

The new rates will look like this:

State Pension

The basic State Pension will rise by 2.9% from £115.95 to £119.30 a week.

The maximum amount pensioners on low incomes can receive with the addition of the standard minimum guarantee of Pension Credit is £155.60 for a single person or £237.55 for a couple.

The new State Pension will launch from 6th April, to replace the basic State Pension and State Second Pension, paying up to £155.65 a week. The change will impact women born on or after 6th April 1953 and men born on or after 6th April 1951.

Universal Credit

The childcare costs element of Universal Credit is changing. Currently it pays 70% of your registered childcare costs up to a monthly limit of £532.29 a month for one child or £912.50 for two or more children.

From 11th April 2016 this will rise so that you will be able to claim back up to 85% of the childcare costs you pay up to a monthly limit of £646.35 for one child or £1,108.04 for two or more children.

The work allowance element of Universal Credit, which is the amount you can earn without your benefit being affected, is also changing.

From April 2016 the work allowance levels for those with children or limited capability for work are being reduced, while for non-disabled, childless claimants it is being abolished altogether, which will mean your benefit is reduced as soon as you start earning.

The tables below detail the changes for higher and lower work allowance.

The higher work allowance (no housing element)

The lower work allowance

Industrial death benefit

Widow’s pension higher rate is rising from £115.95 a week to £119.30 and the lower rate is going up from £34.79 a week to £35.79 a week.

Widower’s pension is rising from £115.95 to £119.30 a week.

Income Support

The Income Support premium available for pensioner couples is rising from £116 to £122.70 a week.

NHS dental charges

Dental charges for NHS patients in England will rise by 5% from 1st April.

The cost of band one treatments, which include an examination, X-rays and a scale and polish, will rise from £17.70 to £18.80.

The cost of band two treatments, which include fillings, root canals and extractions, will increase from £51.30 to £53.90.

The cost of band three treatments, which include crowns, dentures and bridges, will jump from £222.50 to £233.70.

Air Passenger Duty

Air Passenger Duty rates for flights originating from UK airports are also changing.

Band B which covers destinations over 2,000 miles from London will see a rise of £2 on the reduced rate, which covers travel in the lowest class available on an aircraft, and £4 on the standard rate, which relates to travel in any other class of travel.

Vehicle Excise Duty

The changes to VED rates to take effect from 1st April 2016 are set out in the tables below for cars first registered after March 2001. (Alternative fuel car discounts will be remain at £10 in 2016/17)

* Includes cars emitting over 225g/km registered before 23 March 2006.

The VED bands for cars first registered before 1 March 2001 is based on engine size rather than CO2 emissions.

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