Income Tax and Personal Savings

Income tax 2017/18 2016/17
Basic rate band – income up to †£33,500 £32,000
Starting rate for savings income *0% *0%
Basic rate 20% 20%
Dividend ordinary rate **7.5% **7.5%
Higher rate - income over †£33,500 £32,000
Higher rate 40% 40%
Dividend upper rate **32.5% **32.5%
Additional rate – income over £150,000 £150,000
Additional rate 45% 45%
Dividend additional rate **38.1% **38.1%
Starting rate limit (savings income) *£5,000 *£5,000
†For Scottish taxpayers only the limit is £31,500. *If an individual’s taxable non-savings income exceeds starting rate limit, then starting rate limit for savings will not be available for savings income. £1,000 of savings income for basic rate taxpayers (£500 higher rate) may be tax-free. **The first £5,000 of dividends are tax-free.

Personal allowances

  2017/18 2016/17
Personal Allowance (PA) £11,500 £11,000
Married couple's allowance (MCA) (relief given at 10%)    
Either partner born before 6 April 1935 *£8,445 *£8,355
Transferable Tax Allowance ('Marriage Allowance')    
For certain married couples (relief given at 20%) £1,150 £1,100

*Allowances are reduced by £1 for every £2 that adjusted net income exceeds £28,000 (£27,700) to a minimum MCA of £3,260 (£3,220). Where adjusted net income exceeds £100,000, PA is reduced in the same way until it is nil regardless of the individual’s date of birth.

Dividend allowance reduction

The tax-free dividend allowance will be reduced from £5,000 to £2,000 from 6 April 2018.

Tax Shelters 2017/18 2016/17
Venture Capital Trust up to £200,000 £200,000
Enterprise Investment Scheme up to £1,000,000 £1,000,000
Seed Enterprise Investment Scheme up to £100,000 £100,000
Social Investment Tax Relief up to £1,000,000 £1,000,000

Individual Savings Accounts (ISAs)

  2017/18 limits:
Overall investment limit £20,000
Junior ISA and Child Trust Fund limit £4,128

The new Lifetime ISA

From 6 April 2017 any adult under 40 will be able to open a new Lifetime ISA. They can save up to £4,000 each year and will receive a 25% bonus from the government for every pound they put in, up to the age of 50. Funds can be used to save for a first home worth up to £450,000 or for retirement. Various rules and restrictions apply.

Pensions: Money purchase annual allowance

The government will legislate in Finance Bill 2017 to reduce the money purchase annual allowance to £4,000 on and after 6 April 2017. This restricts the amount of tax relieved contributions an individual can make in a year into a money purchase pension, if they have flexibly accessed their pension savings.

Qualifying recognised overseas pension schemes (QROPS)

The government will introduce a 25% charge on transfers to QROPS. This charge is targeted at those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction.

Exceptions will apply to the charge allowing transfers to be made tax-free where people have a genuine need to transfer their pension, including when the individual and the pension are both located within the European Economic Area.

The overseas transfer charge will have effect for transfers requested on or after 9 March 2017.

The measure also widens the scope of UK taxing provisions so that, following a transfer to a QROPS on or after 6 April 2017, they apply to payments out of those transferred funds in the five tax years following the transfer.

Trading and property income allowances

As previously announced, the government will legislate in Finance Bill 2017 to create two new income tax allowances of £1,000 each, for trading and property income. The allowances can be deducted from income instead of actual expenses. The trading allowance will also apply to certain miscellaneous income from providing assets or services.

Following the publication of the draft legislation, revisions will be made to prevent the allowances from applying to income of a participator in a connected close company or to any income of a partner from their partnership.

NS&I Investment Bond

The Budget confirms the rate of the NS&I Investment Bond announced at Autumn Statement 2016. The Investment Bond will offer a rate of 2.2% over a term of three years and will be available for 12 months from April 2017. The Bond will be open to everyone aged 16 and over, subject to a minimum investment limit of £100 and a maximum investment limit of £3,000.