Investors and Savers: The Starting Rate Band

Posted by siteadmin on Tuesday 22nd of March 2016.

For 2015/16, the starting rate band for savings income was widened to £5,000 and the rate reduced from 10% to 0%. The Chancellor has made no changes to the band for 2016/17, despite introducing new dividend and personal savings allowances. The truth is that most people are not able to take advantage of the starting rate band: if your earnings and/or pension income exceed £16,000 in 2016/17, then that probably includes you. However, if you (or your partner) do qualify, you will need to ensure you have the right type of investment income to pay 0% tax.

Year End Planning: If you don’t anticipate using all your personal allowance in 2016/17 think about creating more income by closing deposit accounts before 6 April and crystallising the interest in this tax year. But beware early closure penalties and shutting down accounts with better interest rates than are available now!

For the coming tax year, think about who should own what in terms of investments and savings. The new allowances mean it is no longer simply a question of loading as much as possible on the lower rate taxpayer of a couple. In theory you will each be able to receive an income of up to £22,000 a year tax free in 2016/17, but only if you have the right mix of earnings, savings income and dividends.