With the new Tax Year, comes an increase in your Personal Allowance, Income Tax bands and Marriage Allowance.
For the tax year 2016-2017, the standard tax-free Personal Allowance has been raised to £11,000.
Your Personal Allowance may be higher if you get Blind Person's Allowance or if you were born before 6 April 1938, whereas it'll be smaller if you earn more than £100,000 a year - your Personal Allowance will decrease by £1 for every £2 of income above £100,00, meaning that you won’t receive any Personal Allowance on income above £122,000.
For details on the 2015-2016 Personal Allowance, please see our original article "The Ins and Outs of Income Tax."
How much tax you pay depends on how much you earn over your Personal Allowance, and any income after your Personal Allowance will be taxed:
So, if you're on a salary of £45,000, you won't pay any tax for the first £11,000. After that, you'll pay 20% on £32,000, and then 40% on the remaining £2,000 - and don't forget that anyone earning above £100,000 will have a lower tax-free Personal Allowance.
The only exceptions to savings interest is your Personal Savings Allowance, Individual Savings Accounts (ISAs) and some National Savings and Investments products like savings certificates and Premium Bonds. The ISA allowance for tax year 2016-2017 is £15,240.
Dividends are taxed differently to normal income – no tax is paid on the first £5,000 of dividends received per year, and dividend income after this allowance is taxed at a lower rate than your income. The tax rate on dividend will depend on which tax band you fall into.
|Tax Band||Tax rate on dividends over £5,000|
|Basic rate & non-taxpayers||7.5%|
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