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Personal Tax
The personal allowance
The personal allowance is currently £11,000. Legislation has already been enacted to increase the allowance to £11,500 for 2017/18.
The additional rate of tax of 45% remains payable on taxable income above £150,000 for all UK residents.
Tax bands and rates - dividends
Dividends received by an individual are
subject to special tax rates. The first £5,000
of dividends are charged to tax at 0% (the Dividend Allowance). Dividends received above the allowance are taxed at the following rates:
• 7.5% for basic rate taxpayers
• 32.5% for higher rate taxpayers
• 38.1% for additional rate taxpayers.
Dividends within the allowance still count towards an individual’s basic or higher rate band and so may affect the rate of tax paid on dividends above the £5,000 allowance.
To determine which tax band dividends fall into, dividends are treated as the last type of income to be taxed.
Reduction in the Dividend Allowance
The Dividend Allowance will be reduced from £5,000 to £2,000 from April 2018.
Comment
A reminder that not everyone has the benefit of the full personal allowance. There is a reduction in the personal allowance
for those with ‘adjusted net income’ over £100,000, which is £1 for every £2 of income above £100,000. So for 2016/17 there is no personal allowance where adjusted net income exceeds £122,000. For 2017/18 there will be no personal allowance available where adjusted net income exceeds £123,000.
Tax bands and rates
The basic rate of tax is currently 20%. The band of income taxable at this rate is £32,000 so that the threshold at which the 40% band applies is £43,000 for those who are entitled to the full personal allowance.
In 2017/18 the band of income taxable at the basic rate will be different for taxpayers who are resident in Scotland to residents elsewhere in the UK. The Scottish government has decided to reduce the band of income taxable at the basic rate to £31,500 so that the threshold
at which the 40% band applies remains at £43,000.
In the rest of the UK, legislation has already been enacted to increase the basic rate band to £33,500 for 2017/18. The higher rate threshold will therefore rise to £45,000 in 2017/18.
Comment
The government expect that even with
the reduction in the Dividend Allowance to £2,000, 80% of ‘general investors’ will pay no tax on their dividend income. However, the reduction in the allowance will affect family company shareholders who take dividends in excess of the £2,000 limit. The cost of the restriction in the allowance for basic rate taxpayers will be £225 increasing to £975 for higher rate taxpayers and £1,143 for additional rate taxpayers.
2 Personal Tax
Budget Summary 2017