There were no changes to rates of income tax announced in the Budget.
Allowances and tax bands
The tax allowances and bands for 2017-8 had been announced previously, as a reminder: the personal allowance will be £11,500, with the income on which you start to pay tax at 40% increasing to £45,000.
This means that most people with straight forward tax affairs and no benefits in kind (for example, cars or health insurance) should have a tax code of 1105L taking effect in April 2016.
Other allowance levels can be found on the HMRC web site here.
The Chancellor did not announce the allowances for 2017-8 since there will be another Budget in the Autumn.
A reminder that the Marriage Allowance started from 6 April 2015. This allows a spouse or civil partner to transfer £1,110 (£1,150 for 2017-8) of their personal allowance to their spouse (where both were born after 5 April 1935). Neither party can be higher or additional rate tax payers.
The Marriage Allowance is set at 10% of the personal allowance.
A reminder that the personal savings allowance started from 6 April 2016. This removed tax on up to £1,000 of savings income for basic rate tax payers and up to £500 for higher rate tax payers. Additional rate tax payers do not receive an allowance.
As tax will no longer be deducted at source on interest paid by banks and building societies, you will have to let HMRC know if your interest income is more than the allowance.
The ISA limit increases from £15,240 to £20,000 from 6 April 2017.
The Lifetime ISA
A new ‘Lifetime ISA’ will be introduced from 6 April 2017. This will allow adults under 4o to open a Lifetime ISA and pay in up to £4,000 per annum. The government will add a 25% bonus to the ISA, so, up to £1,000.
Contributions can continue up to the age of 50.
Funds can be used to buy a first home at any time from 12 months after opening the account, and can be withdrawn, with the bonus, from the age of 60.
Savers can make withdrawals at any time before the age of 60, but the bonus element and any interest or growth on it will have to be returned to the government, and an additional 5% charge will be applied if the withdrawal is not for the purchase of your first home.
The tax-free childcare scheme first announced in the 2013 budget will be rolled out from April 2017 with all parents being eligible by the end of 2017.
The scheme will be worth up to £2,000 per child (under the age of 12) each year (£4,000 for disabled children).
The existing scheme Employer-Supported Childcare will remain open to new entrants until April 2018 to support the transition between the schemes
There are two types of Tax Credits; Working Tax Credit (WTC) and Child Tax Credit (CTC). The CTC is potentially available to families who have responsibility for one or more child.
There were no changes to tax credits announced in the Budget 2017. The rates of payments, can be found at here, have increased slightly for disabled workers and children, but remain largely the same.
There were no changes announced to child benefit in Budget. Rates for 2017-8 will remain at £20.70 for the first child and £13.70 for subsequent children.
Don’t forget that there are special rules for higher earners which mean that, once the income of one of the parents reaches £50,000, 1% of the Child Benefit award will effectively be lost for every £100 of that parent’s income between £50,000 and £60,000 and at £60,000 of income, any remaining benefit will be withdrawn.
A reminder of some announcements from the Summer Budget 2015 that will affect tax returns for 2016-7 or come in to effect from April 2017:
Tax relief on interest
Landlords will no longer be able to deduct all of their finance costs from their property income to arrive at their property profits if they pay tax at the higher rate. They will instead receive a basic rate reduction from their income tax liability for their finance costs.
Landlords will be able to obtain relief as follows:
- in 2017-8 the deduction from property income will be restricted to 75% of finance costs, with the remaining 25% being available as a basic rate tax reduction.
- in 2018-19, 50% finance costs deduction and 50% given as a basic rate tax reduction.
- in 2019-20, 25% finance costs deduction and 75% given as a basic rate tax reduction.
- from 2020-1 all financing costs incurred by a landlord will be given as a basic rate tax reduction.
Wear and tear allowance
From April 2016, the Wear and Tear Allowance (a deduction of 10% of the rent for landlords of furnished properties) was replaced with a new relief that allows all residential landlords to deduct the actual costs of replacing furnishings, so don’t forget this when you fill in your 2016-7 tax returns.
Rent a room
Rent a Room relief, which provides for tax-free income that can be received from renting out a room or rooms in an individual’s only or main residential property, increased from £4,250 to £7,500 per year from 6 April 2016.
Making Tax Digital
Making Tax Digital (MTD) has been going through consultations over the past year.
Under the scheme, limited companies, unincorporated business and landlords will have to use online software to report their income and expenses to HMRC at least quarterly.
The requirements were due to come into effect from April 2018 for unincorporated businesses and landlords with turnover (ie income before costs) of £10,000 or more, but the Chancellor announced in the Budget that implementation will be delayed until April 2019 for those with turnover under the VAT threshold.
So, the timetable for MTD now stands as:
April 2018 – unincorporated business and landlords with turnover over the VAT threshold
April 2019 – unincorporated business and landlords with turnover over 10,000 but below the VAT threshold
April 2019 – VAT registered businesses
April 2020 – limited companies
Businesses and landlords with turnover less than £10,000 are exempt from the requirements (presumably unless they are registered for VAT).