The new pension freedoms planned for April will provide unprecedented…
In the Spring Budget last year, the Chancellor announced the new personal savings allowance which will be introduced in the new 2016/17 tax year. The amount of the new allowance will depend on the rate of tax that you pay on your income. If you are a basic rate tax payer you will have an allowance of £1,000 to set against your savings income. Savings income is income from a bank or building society. If you are a higher rate tax payer it will be £500. Additional taxpayers will not benefit from these changes.
These measures, along with the £5,000 0% start-up rate, the increased personal tax allowance (moving up from £10,600 to £11,000) and the dividend tax free allowance of £5,000 really be helpful for those on a lower incomes. Also, this year, saw the introduction of the ability of married couples to be able to transfer some of their unused personal allowance and therefore save tax of around £215. Some investigation has revealed that you cannot claim married couples allowance as well as transferring unused personal allowances between spouses.
It is anticipated that bank and building society interest will no longer be taxed at source but paid gross to the taxpayer. This means most taxpayers won’t have to reclaim overpaid tax on their bank and building society income and the R85 (the form needed to register for gross income) will be abolished. The irony of this move is that to reach this limit of £1,000 you would need to have £100,000 in the building society paying 1%. Therefore, many people will not make full use of the allowance and this is probably not such a great “give-away” as it seems.
For those who bust their personal saving allowance there will, of course, be tax to be paid and this is expected to be achieved by using tax codes to collect outstanding tax. Apparently, HMRC will calculate this using information provided by the bank or building society. The exact mechanism is unknown but many commentators are speculating that this could lead to wrong tax codes and taxpayers having to remain vigilant when their PAYE coding notices arrive.
Another area that has been flagged up recently is that of probate fees. The new property-linked IHT allowance won’t fully kick in until the 2020/21 tax year when the full £175,00 property linked allowance will be available and by that time many families may see a substantial reduction in the amount of IHT which is payable. In the meantime, however, it appears that the government is planning to increase probate fees. Probate fees are incurred when apply for a Grant of Representation and are the cost of administering probate by HM courts and Tribunal Service. Under the new proposals, the current threshold of £5,000 will be raised to £50,000 and the fees will be banded. A typical estate between £500,000 to £1 million will have a £4,000 probate fee to pay, with estates over £2 million paying £20,000 in probate fees. The plans have yet to be approved, but if they are, it is estimated that they could raise another £250 million a year.
Richmond Independent is a trading name of Investment & Financial Solutions Partnership LLP which is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate tax and estate planning.