Now we are into the new tax year, it’s a good time to remind ourselves of the new situations and challenges that we need to be aware of:

Personal Dividend Allowance:
Be aware where this features in a client’s tax situation. For example, I have a non-dividend income of £40,000, and receive dividends of £9,000 outside of an ISA.

Of the £40,000 non-dividend income, £11,000 is covered by the Personal Allowance, leaving £29,000 to be taxed at basic rate.

This leaves £3,000 of income that can be earned within the basic rate limit before the higher rate threshold is crossed. The Dividend Allowance covers this £3,000 first, leaving £2,000 of Allowance to use in the higher rate band. All of this £5,000 dividend income is therefore covered by the Allowance and is not subject to tax.

The remaining £4,000 of dividends are all taxed at higher rate (32.5%).

Personal Savings Allowance
The amount of your Personal Savings Allowance depends on your adjusted net income. The table below shows your allowance from 6 April 2016, depending on whether you’re a basic, higher or additional rate taxpayer.

Tax rate  Income band (adjusted net income) Personal Savings Allowance
Basic 20% Up to £43,000 Up to £1,000 in savings income is tax-free
Higher 40% £43,001 – £150,000 Up to £500 in savings income is tax-free
Additional 45% Over £150,000 No Personal Savings Allowance


What counts towards to the allowance:

  • bank and building society accounts
  • accounts with providers like credit unions or National Savings and Investments
  • bond gains
  • interest distributions (but not dividend distributions) from authorised unit trusts, open-ended investment companies and investment trusts
  • income from government or company bonds
  • most types of purchased life annuity payments.

Please note that bonds gains can be used against the savings allowance.

Tapered Annual Allowance
Bond gains are taken into consideration when calculating a client’s threshold income calculation for pension contributions.

  1. Non pensionable income – this does count when calculating tapered annual allowance – this seems to be a big misconception for some professional connections currently.
  2. Advice on investments – with a client putting money in or making withdrawals,  always has to have a consideration for the effect it may have on the pension annual allowance!
  3. Periodic charges – This is the tax year that periodic charges start to hit our industry.
  4. Dependant’s drawdown and flexi-access drawdown – Where an individual has a dependant’s drawdown pension fund or dependant’s flexi-access drawdown fund because the dependant is a child under the age of 23 of the member who has died, that individual will be able to continue to receive drawdown pension or flexi-access drawdown pension as authorised payments after reaching age 23. Prior to this the dependant would either have to take the remaining drawdown fund before reaching age 23 or suffer an unauthorised payment charge on any fund remaining and paid out from that point. This never made sense (as a nominee drawdown for a child, not related to a deceased member, was not required to stop at age 23) and is therefore a welcomed change to clean up the tax rules. This change is due in July 2016.

This article has been written by our partner, AXA.  For further information, contact us today.