Income tax

 

Tax bands and rates 2016/17 2015/16
Basic rate band £32,000 £31,785
Basic tax rate 20% 20%
Dividend ordinary tax rate 7.5% 10%
Savings starting rate band £5,000* £5,000*
Savings starting rate - savings income 0% 10%
Higher rate band £32,001 - £150,000 £31,786 - £150,000
Higher tax rate 40% 40%
Dividend upper tax rate 32.5% 32.5%
Additional rate band over £150,000  £150,000
Additional tax rate 45% 45%
Dividend additional tax rate 38.1% 37.5%
Personal allowances Those born after 5 April 1948 £11,000 £10,600
  Those born after 5 April 1938 and before 6 April 1948 £11,000 £10,600
  Those born before 6 April 1938  £11,000 £10,660
Married couples/civil partners Transferable allowance £1,100 £1060
Blind person's allowance   £2,290 £2,290
Married couple's allowance (MCA) Maximum amount £8,355 £8,355
Tax reduction at 10% £835.50 £835.50
Applies after UK residence in 7 or
more of the previous 9 tax years
£30,000 £30,000
Applies after UK residence in at least 12 of the previous 14 years £60,000  £60,000 
Applies after UK residence in at least 17 of the last 20 years £90,000  £90,000 

Enterprise investment scheme (EIS) up to

£1,000,000 £1,000,000
Maximum amount for EIS carry back £50,000 £50,000
Income tax relief rate 30% 30%
Seed enterprise investment scheme (SEIS) £100,000 £100,000
Income tax relief  50%  50%
Venture capital trust (VCT) £200,000 £200,000
VCT tax relief rate 30% 30%
Golden handshake maximum tax free £30,000 £30,000
Rent a room - exempt on gross annual rent up to £7,500 £4,250
Construction industry scheme - deduction rate    
Standard rate - registered 20% 20%
Higher rate - not registered 30% 30%

*Savings income falling into the first £5,000 may be taxed at 0% for certain low income earners.

2017 and beyond

The personal allowance for 2017/18 will be £11,500. The basic rate limit is to be increased to £33,500 for 2017/18 and the higher rate threshold will increase to £45,000 in 2017/18.

It is intended to increase the personal allowance to £12,500 and the higher rate threshold to £50,000, but no timetable for these increases has been announced. Once these limits have been attained they will, in future, be index linked by reference to the CPI (Consumer Prices Index).

Termination payments over £30,000 which are subject to income tax after April 2018 will also be subject to employers national insurance contributions.

Income tax will only be applied on the equivalent of an employee’s basic pay if the employee has not worked the notice period.

The first £30,000 of a termination payment will remain exempt from income tax and national insurance, subject to the existing rules on eligibility for the exemption. 

From April 2017 there are 2 new income tax allowances of £1,000 each for trading and property income.

Individuals with trading income or property income below the level of the allowance will no longer need to declare or pay tax on that income. The trading income allowance will apply to certain miscellaneous income from providing assets or services.