From 6 April 2016, the personal savings allowance (PSA) will allow basic rate taxpayers to receive up to £1,000 of savings income tax-free. For higher rate taxpayers, this limit will be £500. HMRC have published guidance setting out details of what counts as savings income and how the allowance will be calculated, including some useful examples.

Savings income includes account interest from:

– bank and building society accounts;
– accounts with providers like credit unions or National Savings and Investments.

It also includes:

– interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts;
– income from government or company bonds; and
– most types of purchased life annuity payments.
Interest from Individual Savings Accounts (ISAs) does not count towards the PSA as it is already tax-free.

http://www.theaccountingfactory.co.uk

The new rules governing the taxation of dividends are set to take effect in relation to dividends received after 5 April 2016. The changes include:

– a £5,000 dividend nil rate (also known as the ‘dividend tax allowance’ (DTA)), which will effectively tax at the nil rate, the first £5,000 of taxable dividend income (i.e. after deducting the personal allowance, but treating dividends as the top slice of income, so the personal allowance is used last against dividends). Any dividends above the first £5,000 will be taxed as if the £5,000 used up either the basic rate band or the higher rate band;
– dividends exceeding the dividend nil rate will be taxed at:
– 7.5% in the basic rate band (the ordinary rate);
– 32.5% in the higher rate band (the upper rate); and
– 38.1% in the additional rate band (the additional rate);

– the tax credit, which currently attaches to dividends paid by UK companies, will be abolished from 5 April 2016, which means that the dividend paid will no longer be grossed up by one-tenth when calculating the shareholder’s taxable income; and
– dividends will not be set off by either:
– the personal savings allowance (PSA) (from 2016/17); or
– the £5,000 savings allowance (from 2015-16),

which are both used only against savings income (generally interest).

The PSA is £1,000 for any saver whose highest rate of income tax in the year is the basic rate (20%), but only £500 for any saver whose highest rate of income tax in the year is the higher rate (40%). If any of an individual’s income is liable to tax at the higher rate, then the higher rate PSA will apply. The PSA and the DTA do not reduce total income for tax purposes and still count towards basic or higher rate bands.

Over recent years, since the 10% tax credit has covered all their income tax liability, some basic rate taxpayers have had no assessable income and have therefore had no reporting obligations to HMRC. However, some dividends received after 5 April 2016 may not be fully covered, e.g. by the personal allowance and DTA, so taxpayers in this position will now have to notify a liability to pay tax to HMRC for the first time for 2016-17. There has been speculation within the tax and accountancy professions that this change can be regarded as a new form of ‘stealth’ tax.

It is also worth noting that the withdrawal of the tax credit for dividends may create a liability to pay the income tax relating to donations under the Gift Aid Scheme. There is no income tax liability on dividends taxed at the nil rate, so such dividends cannot frank the income tax on a Gift Aid donation made after 5 April 2016.

Assuming the provisions in the Finance Bill 2016 are enacted, practitioners should advise certain clients promptly, so they can plan to transfer shareholdings if appropriate, and, where possible, time dividends to best effect.

http://www.theaccountingfactory.co.uk

The WordPress.com stats helper monkeys prepared a 2015 annual report for this blog.

Here’s an excerpt:

The concert hall at the Sydney Opera House holds 2,700 people. This blog was viewed about 14,000 times in 2015. If it were a concert at Sydney Opera House, it would take about 5 sold-out performances for that many people to see it.

Click here to see the complete report.

If you are an accountant this could be great fit for you and your clients, if you have life insurance why not place that cost on company expenses. Either way anyone who pays for life cover out of their own account can now benefit if they are LTD company Director. Life is full of examples of people buying exactly the same thing but for very different reasons. A Relevant Life Plan is no different. We took a moment to ask a few of our clients why they chose to go with a Relevant Life Plan. A few of their responses are below:

• “I am a business owner and heard a shocking statistic that businesses in the UK are terrible at putting in place adequate business continuity plans. The result is that of those without plans, 70% will go out of business within two years if they were to lose a key person. 

• I didn’t want my business to be one of the 70%, so I took out a tax-efficient Relevant Life Plan to ensure if the worst ever did happen, there would be the funds to support the business and its employees through a difficult time.”

• “Now we have kids, I was conscious how financially vulnerable my family would be if I was to die. I’m an IT contractor and the sole source of income for the family. We enjoy a very comfortable lifestyle now and I wanted to help secure the financial security of the family if something were to happen to me. A Relevant Life Plan was an incredibly tax-efficient way for me to achieve this.”

• “I am an employer running a small business. It is often difficult for us to compete with larger employers on salary and benefits to attract the best staff. When I heard about Relevant Life Plans and how tax-efficient they were, for both the business and employee, I immediately recognised here was an affordable opportunity for me to be able to offer our staff a benefit akin to the bigger companies.It was a no-brainer to help retain and attract the best people.”

• “As a business owner, I am always looking to save tax.When a client mentioned their Relevant Life Plan and how it allowed them to put their life insurance through their business, with no need to put it on their P11D, I couldn’t believe it. Not only did it save them personally tax and NI, it was also a fully tax-deductable business expense, thereby reducing the business’ Corporation Tax liability too. When I heard that it was all HMRC-approved I didn’t hesitate to get a policy in place for myself.”

You can see from the small sample of responses above the array of reasons that someone takes out a Relevant Life Policy. What they all had in common was the tax-efficient nature of the plan.

Whatever your motivation is for looking into a Relevant Life Plan, we can assure you that you’ll be as delighted as the 1000s of other people that have taken out a tax-efficient Relevant Life Policy already.

For more information on relevant life plans please contact Tom Hitchcock at Broadbench on 01202 978663.