Independent tax revisited
Changes to the tax system now and in 2016 mean it is time for couples to review their tax planning.
When independent tax for married couples was introduced 25 years ago, it prompted a flurry of tax planning as husbands and wives rearranged their financial affairs to reduce their tax bills. Now another set of tax changes have brought the focus back to independent tax which also applies to civil partners:
The starting rate band This tax band applies to savings income (mainly interest). For 2015/16 this band is £5,000 and the tax rate is 0%. Unfortunately many taxpayers are unable to exploit this apparent generosity because their earnings/pension income is too high.
The personal savings allowance From 2016/17 this will give basic rate taxpayers an allowance of £1,000 to set against their savings income. Higher rate taxpayers will receive a £500 allowance, but additional rate taxpayers receive nothing. The allowance’s arrival will lead banks and building societies to pay deposit interest without deduction of tax from 6 April 2016.
The dividend allowance The dividend allowance also comes into being next tax year. The first £5,000 of dividend income will be free of personal tax, regardless of what tax rate you pay on your other income.
In theory, in 2016/17 you and your husband/wife/civil partner could each have total income of £22,000 before paying any tax. It would need to be a particular mix of income. However, establishing the right structure of income – who gets what from where – must be balanced against your long term investment goals: generating a large slice of interest income may help keep your tax bill down, but in the current economic environment it also places a low cap on your investment returns.
The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice. The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.
The information in this article does not constitute advice and should be used for informational purposes only. This content has been provided to Helm Godfrey by Taxbriefs.