The government is set to increase the income tax personal allowance from £10,600 in 2015/16 to £11,000 in 2016/17 and £11,200 in 2017/18 for all individuals.
Basic rate limit
The government is also set to increase the basic rate threshold from £31,785 in 2015/16 to £32,000 in 2016/17 and £32,400 in 2017/18. These rates in addition to the personal allowance (if available) make the higher rate threshold i.e. the point at which higher rate tax starts.
Additionally, the National Insurance Contributions Upper Earnings Limit will be increased to stay aligned with the increases in the higher rate threshold.
The table below summaries all of the above increases:
| 2015/16 | 2016/17 | 2017/18 | |
| Personal allowance | 10,600 | 11,000 | 11,200 |
| Basic Rate Limit | 31,785 | 32,000 | 32,400 |
| High Rate Threshold | 42,385 | 43,000 | 43,600 |
Dividends Taxation
The government is set to abolish notional dividend tax credit from April 2016 and introduce a new dividend tax allowance. This means that the net amount of dividend received will no longer be grossed up by 100/90, and instead the amount received will now be reported as the gross with no notional tax credit. Taxpayers will however be able to receive dividend income of £5,000 each year tax free. Any dividend income received above available personal allowances and the dividend allowance of £5,000 will be subject to tax at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. This will increase all taxpayers liabilities who receive dividend income each year of more than the dividend tax allowance.
Lifetime allowance for Pension Contributions
The government are going to reduce the Lifetime Allowance for pension contributions from £1.25 million to £1 million from 6 April 2016. There will however be transitional protection for pension rights which have already exceeded £1 million.
Annual Allowance for Pension Contributions
From April 2016, if your annual net adjusted income, adding back pension contributions exceeds £150,000, your Annual pension Allowance (currently £40,000) will be tapered away. This will be tapered by £1 for every £2 over £150,000, and will be reduced to a minimum of £10,000.
However, if your annual income, excluding pension contributions, is below £110,000, you will not be subject to a Tapered Annual Allowance, however anti avoidance rules will exist to stop salary sacrifice arrangements being increased after 8 July 2015.
Changes to reliefs for Residential Rental Properties
Wear and Tear Allowance
From April 2016, a new relief will be introduced that allows landlords of residential property to claim for the actual costs of replacing furnishings. This will replace the Wear and Tear Allowance currently in use which allows the landlord to claim a yearly deduction towards the wearing of the furnishings but is only available to fully-furnished residential lets.
This new method will benefit the landlords of part-furnished properties that have previously not been able to claim the costs of replacement furniture or the wear and Tear Allowance.
Capital allowances will continue to be available for landlords of furnished holiday lets.
Restricting relief on mortgage interest
Currently landlords receive 100% relief on the mortgage interest paid against profits on the letting of property. However from April 2017 the percentage relief given against these profits will be reduced gradually and by 2020 no relief will be given as an expense against the properties income.
However basic rate tax relief will instead be given in the individuals tax computation on the amount of interest paid and not given as a property expense (From 2020 this will be 100% however gradual amounts apply until then). This will see no change for basic rate taxpayers, however higher and additional rate taxpayers will receive reduced relief.
Rent-a-Room Relief Increase
From April 2016, there will be an increase in the relief that landlords that let out rooms in their own home can claim.From 2016/17 the Rent-a-Room Relief that can be claimed will increase from £4,250 to £7,500 per property.
National Insurance and Employee Benefits
Employment Allowance to be increased
From April 2016 the employment allowance which is currently £2,000 per annum will be increased to £3,000.
Non UK Domiciled Individuals
Changes to domicile status for long term residents
It has been proposed that, with effect from April 2017, people who have been resident in the UK for more than 15 out of the previous 20 years will be taxed as if they are UK domiciled for Income Tax, Capital Gains Tax and Inheritance Tax purposes.
Currently this rule applies when you have been resident in the UK for 17 of the previous 20 years but currently only applies for the purposes of inheritance tax.
The reduction from 17 years to more than 15 will mean that all Non UK Domiciled individuals will be taxable on the Arising Basis from their 16th year of residence in the UK. It will therefore also presumably eliminate the recently introduced remittance basis charge of £90,000 for those using the remittance basis who have been resident in the UK for 17 of the last 20 years.
A technical consultation is being published later in 2015 and fuller details on this proposal will not be known until after the results have been considered and published.
Changes to domicile status for those born in the UK
Under current legislation, it is possible for someone to claim to be non UK domiciled, despite having been born in the UK to UK parents.
From April 2017, proposed new legislation will no longer allow you to be regarded as Not UK Domiciled in any year that you are resident in the UK if you were born in the UK AND you had a domicile of origin in the UK. Ordinarily, you have a domicile of origin in the UK if your father (or mother if unmarried at the date of your birth) was UK domiciled at the date of your birth.
This will typically affect, those who were originally UK domiciled and who have left the UK with an intention to remain and permanently settle in another country (thereby acquiring a domicile of choice in another country) but who return to the UK for a short period e.g. on a short term secondment by their current employer.
It should also be noted that the current proposal will also ignore any favourable treatment in respect of trusts set up while they were actually not UK domiciled. This has potential to have expensive tax consequences if a 10 year charge happened to fall within a short term secondment to the UK!
These proposals will be consulted on before they become effective in April 2017.