Personal Finance – UK taxes and investment schemes (2015 – 2016)

What is an Stocks and Shares ISA

An ‘Individual Savings Account’ is a tax-efficient shelterpiggybank. Savings and investment made into an ISA are completely shielded from the taxman. The main advantage is that you don’t need to declare these investments on your tax returns and you can make free withdrawals whenever you require.

From the 1st of July 2014, the cash ISA and the Stocks & Shares ISA were merged into a new ‘Super ISA’ with a tax free allowance of £15,000.

Update: The ISA allowance for the 2015/2016 tax year is £15,240 and the annual Isa allowance will rise to £20,000 from April, 2017.

Capital Gains tax-free allowance

The ‘annual exempt amount’ allows you to make a certain sum before you pay capital gains tax.

Update: The amount for the 2015/2016 tax year is £11,100.

Capital Gains Tax (CGT)

18% for lower rate taxpayers and 28% for those in the higher rate tax band.

Updated: From April 2016, the higher rate of CGT will be cut from 28% to 20% and the basic rate from 18% to 10%. However, the old higher rates will still apply to gains made on the sale of residential investment properties (second home or buy-to-let property) and carried interest (profits made by executives in private equity investment firms).

Source: HM Revenue and Customs

Dividend income tax

From 6 April, 2016 – Investors will have a new ‘tax-free dividend allowance’ of £5,000 a year.

Dividend income above this amount will be taxed at 7.5% for basic-rate taxpayers.

Higher-rate taxpayers dividend income will be taxed at 32.5%.

And additional-rate taxpayers will pay 38.1%.

Income Tax rate

The income tax free allowance for the 2015-2016 is £10,600, rising to £11,000 in 2016 and £11,500 in 2017.

For the 2015-2016 tax year:

The basic rate income tax: 20% from £0 to £31,785 (income after the tax-free allowance)

Higher rate tax rate: 40% from £31,786 to £150,000 (income after the tax-free allowance)

45% over £150,001.

Source: HM Revenue and Customs

Premium Bonds

Premium Bonds are a popular savings product issued by the UK’s ‘National Savings And Investments – NS&I’, a state-owned savings bank.

The government pays interest on the bonds of 1.35%. But instead of the interest being paid into individual accounts, it is paid into a prize fund from which a monthly lottery distributes tax-free prizes.

Prizes can range from £25, up to £1,000,000.

The total cap on premium bonds will rise from the current £30,000 to £40,000 in June 2014. It will then jump again to £50,000 in 2015.

Furthermore the number of £1 million prizes will be doubled from one to two a month. These changes will take place in 2014 August.

As a caveat, the prize fund remains unchanged at £50 million per month. This means that for more people to win the additional 1 million pound prize, thousands of people won’t win the £25 or £50 prizes.

The current interest rate on premium bonds is 1.3%. This means that for every £1000 invested, you would expect to win £13. Because the minimum prize is £25, some people will win larger prizes while others win nothing.


What is an Annuity?

Your pension pot can be used to purchase a secure, regular income from your insurance company, this is an annuity. The insurance company are then responsible for paying you an income for the rest of your life.

Once an annuity has been purchased, there is no going back. Following the 2014 budget, there will be no compulsion the buy an annuity.

What is SIPP?

A self-invested personal pension is a tax-efficient personal pension scheme which allows individuals to select and manage their own investments. Its a ‘DIY’ pension scheme that gives you the freedom to determine how your retirement savings are invested.

Investments inside a SIPP are free of capital gains and income tax.

The annual contribution is capped at £40,000 and the lifetime allowance is £1.25m

Personal savings contributions into a SIPP receive tax relief of up to 45%. For example If you invest £8000 in a SIPP, the government automatically adds £2000 basic tax relief, increasing the total contribution to £10,000.

From the age of 55, up to 25% of your pension fund can be withdrawn tax free. The reminder is usually converted into a annuity.

Income drawdown

Income drawdown pension allows you to take income from your pension pot while the funds remains invested.

You can choose how much pension you want to be paid each year within certain limits.

There are two forms of drawdown pension: capped drawdown and flexible drawdown

Workplace Pension

A workplace pension is a method of saving for your retirement that’s arranged by your employer. They are also referred to as ‘occupational’ or ‘work-based pensions’.

Each payday, a portion of your pay is put into the pension scheme automatically. Your employers and government (through tax-relief) will also put money into your pension scheme.

Pension Automatic Enrolment

This new law means that every employer must automatically enrol workers into a workplace pension scheme if they:

– Are aged between 22 and State Pension age

– Earn more than £10,000 a year

– Work in the UK

More information about workplace pensions and specifically ‘automatic enrollment’ introduced in October 2012 –


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