The UK tax year begins on the 6th of April. There’s a long story behind this odd date... but, for now, let’s just say that 6 April is the date that new tax rules are traditionally implemented, and this year is no exception.
The date itself may be the same as ever, but this doesn’t mean the new tax year will be devoid of new developments. Some important new rules come into effect on 6 April 2016, and Aviva is updating its relevant products to reflect what’s changing.
We’ve summarised some of the key points below. Please do bear in mind that we’re in no way instructing you to take action, but we think it’s important that you’re informed about changes which may influence your financial planning.
Pensions – changes to the annual allowance
There is a limit to how much you can save into pensions each tax year and get tax relief. For most people this limit is £40,000, but if you have total annual income of more than £110,000 (excluding pension contributions) and total annual income of £150,000 or more (including pension contributions) this limit will be reduced from 6 April 2016. If you save more than the maximum you may incur a tax charge. You can read more about this change in our 2015 Summer Budget report.
If you’re approaching your annual allowance limit, it may be possible to ‘carry forward’ unused allowance from previous pension input periods. It’s worth taking a look at HMRC’s guidance notes on this subject.
Pensions – changes to the lifetime allowance
There is a limit to how much you can take from your pension pot without incurring an additional tax charge. On 6 April 2016 this maximum is being reduced from £1.25m to £1m. If you take benefits worth more than this maximum you may incur a tax charge. You can read more about this change in our 2015 Summer Budget report.
ISAs – new flexible rules
There are tax advantages associated with saving in an ISA. There’s also a limit to how much new money you can save in an ISA each tax year. The current annual limit is £15,240. Despite these limits, from 6 April 2016 new rules are being introduced to increase the flexibility of ISAs. From this date, you will be able to withdraw and replace money from your stocks and shares ISA without compromising your limit for new money each year. This flexibility already applies to cash ISAs. Again, you can read more about this change in our 2015 Summer Budget report .
Savings interest – new tax treatment
From 6 April 2016, basic rate taxpayers won’t pay tax on the first £1,000 of interest received from money in a bank or building society account or from some collective investments. Higher rate taxpayers will be allowed to earn £500 a year in interest, also from April 2016, without paying tax. You can read more about this change in our report A budget for savers.
Dividends – new tax treatment
On 6 April 2016 the tax treatment of dividends is being simplified. If the total dividend income you receive is less than £5,000 in a particular tax year, then no tax will be due. On any dividends over £5,000, tax will be paid on the excess at the following rates:
- 7.5% for basic rate taxpayers;
- 32.5% for higher rate taxpayers; and,
- 38.1% for additional rate taxpayers.
Our Summer Budget report is the place where you can read more about this change.
Pension death benefits – new tax treatment
If you die while in the ownership of a pension annuity or drawdown product, the tax treatment for your beneficiaries is changing. A key age in this area is 75. If you die before age 75, any pension benefits can usually be passed on free of tax. This rule isn’t changing. If you die on or after age 75, from 6 April 2016 any benefits will be taxed at the beneficiary’s marginal rate. This is a change from the current rule, where any passed-on lump sums are taxed at 45%.
State pension – new system launching
The British state pension system is one of the oldest in the world. Over the years it has also become one of the most complicated, with low levels of public understanding. A new state pension is being introduced from 6 April 2016. We’ve produced an article which provides a summary of the new single state pension.