Chancellor George Osborne announced a number of significant changes which will become effective in April 2016 and will affect businesses and individuals.
You have a window of opportunity now in the month of March to take action and mitigate the future impact of theses changes.
With effect from 5th April 2016 :
• the first £5,000 of dividend income will be tax free
• the dividend tax credit of 10% will be abolished
• dividend income will be taxed at the variable rates which reflect the individuals income tax band , Basic rate – 7.5% , higher rate – 32.5% , additional rate 38.1%
The example set out below demonstrates the financial impact of the change to dividend tax based on a net dividend income of £75,000. This example assumes that the tax payer has other income which utilises their personal allowance.
Dividend income – £75,000
Tax payable –
a) 2015 / 2016 – £11,578
b) 2016/2017 – £16,000
A higher income tax payer with £75,000 of dividend income will pay increased income tax of £4,422 in 2017 compared to 2016.
Consider the tax benefit of maximising dividends, where possible, prior to 5th April 2016. You should take care to consider the impact on your total taxable income prior to decision making.
Furnished Properties Rental
The 10% wear and tear allowance will be abolished with effect from 6th April 2016 and replaced by an allowable deduction for actual expenditure on furniture and accessories.
If you are planning to replace furniture and/or accessories before 6th April 2016 consider delaying the purchase until post 6th April . You will utilise 100% of the wear and tear allowance in 2015/2016 and also benefit from the allowable deduction of actual furnishing expenditure in 2017.
Mortgage Interest Relief
Individual landlords will no longer be able to deduct all of their mortgage and other finance costs from their property income to arrive at their property profits. With effect from 6th April 2016 the relief currently available at marginal higher rates will be restricted to relief at the basic rate (20% ).
The change will be phased in over four years 2017 to 2021.
2017/2018 – 75% of cost allowable at highest marginal rates
2018/2019 – 50% of cost allowable at highest marginal rates
2019/2020 – 25% of cost allowable at highest marginal rates