Compact Services

  2015 Budget - Personal Taxation

Income tax and capital gains tax rates

  2015/16 2014/15
Basic rate band £31,785 £31,865
Higher rate band £31,786 to £150,000 £31,866 to £150,000
Additional rate on income over £150,000 £150,000

Allocation of rate bands

Taxable income uses up the rate bands in the following order:

  • General income (employment, business profits, rent)
  • Savings income (mainly interest)
  • Dividends (mainly distributions from companies)

Rates differ for

|<- - - - - 2015/16 - - - - ->| |<- - - - - 2014/15 - - - - ->|
General Savings Dividends General Savings Dividends
Basic 20% 20% 10% 20% 20% 10%
Higher 40% 40% 32.5% 40% 40% 32.5%
Additional 45% 45% 37.5% 45% 45% 37.5%

If taxable general income is less than £5,000 (2014/15: £2,880), savings income is taxed at a ‘starting rate’ of nil (2014/15: 10%) until total taxable income exceeds that limit. This ‘starting rate band’ is part of the basic rate band.

Extension of basic and higher rate bands

Payments of gift aid donations or personal pension contributions increase the basic and higher rate bands by the grossed up equivalent of the payment. There are restrictions on the amount of tax relief for pension contributions (see Investment Reliefs).

Filing of return and payment

2015/16 personal tax return: if a notice to file is issued, due to be filed by 31 January 2017 (online) or 31 October 2016 (paper)

  • penalty for late return: £100 (even if no tax due); further penalties for more than 3, 6 or 12 months late

2015/16 tax payable:

  • tax on employment income paid under PAYE each month

  • basic rate liability on savings and dividends usually settled by receiving the income net of tax paid or credited

  • balance of tax due under self assessment (SA):
    • payments on account due 31 January 2016 and 31 July 2016, based on the 2014/15 SA income tax and Class 4 NIC
    • balance, plus any CGT, due 31 January 2017, with the first payment on account for 2016/17

Missing any payment date leads to interest; missing the balancing payment date by 30 days will lead to a 5% penalty. Further 5% penalties apply when the balancing payment is 6 months late and 12 months late.

Main personal allowances

  2015/16 2014/15
Personal income tax allowance a) £10,600 £10,000
CGT annual exemption £11,100 £11,000
Blind person's allowance £2,290 £2,230
Marriage allowance b) £1,060 £nil

Age allowances

  2015/16 2014/15
Personal allowance (PA)
• Born 06/04/1938 to 05/04/1948 £10,600 £10,500
• Born before 06/04/1938 c) £10,660 £10,660
• Minimum £10,600 £10,000

Married couple' allowance (MCA) (also for civil partners)
  2015/16 2014/15
• Born before 6th April 1935 £8,355 £8,165
• Minimum c) £3,220 £3,140
• Income Limit d) £27,700 £27,000

a) Allowances are reduced if 'adjusted net income' (ANI) exceeds £100,000. ANI is total taxable income less qualifying pension contributions and Gift Aid donations. PA is reduced by £1 for every £2 of ANI over £100,000, so is nil when ANI is £121,200 or more.

b) Married couples and civil partners born after 5 April 1935 can transfer this portion of their personal allowance to their spouse/partner as long as the recipient is not taxed at more than 20%.

c) Age allowances are reduced by £1 for every £2 by which ANI exceeds the income limit. PA is reduced first until it reaches the minimum; then MCA is reduced until it reaches the minimum.

d) Amount depends on age of older spouse; allowed at 10%; reduced if marriage or civil partnership took place during the tax year.

Main personal reliefs

Rent-a-room exemption for letting out part of the taxpayer's only or main residence: gross income of £4,250pa.

Gift aid: on a cash gift to charity, the charity can reclaim 20/80 (25%) of the donation from HMRC if the donor makes a declaration. The donor increases the basic rate band by the gross gift (i.e. donation x 100/80). The market value of gifts of land or quoted shares can be deducted from taxable income for full tax relief, and the charity pays no tax on the gift received. Also the "Give as you earn" scheme allows charitable gifts to be made from pre-tax pay, which reduces tax paid under PAYE.