Summary of changes affecting tax treatment of investment income and gift aid payments, August 2015


Dividend Allowance:

From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

The Dividend Allowance means that individuals won’t have to pay tax on the first £5,000 of dividend or other savings income, no matter what non-dividend income is received.

The allowance is available to anyone who has dividend or other savings income.

Click here to read more at HMRC website.

Gift Aid Payments:

With the abolition of the dividend tax credit, individuals will no longer be able to use the tax credit attached to their dividend income to satisfy the gift aid withholding tax on charitable donations.

Primarily this will affect two groups of people: an individual whose income is less than the personal allowance (£11,000) and receives less than £5,000 of dividend income; and wealthy benefactors who receive large sums of dividend income and give away a high percentage of their income.

In both of these cases, individuals may find that they become liable for additional tax on any donations made through gift aid if the donations exceed 4 times the tax paid by them for that year.

Changes to Tax on Bank Interest:

The government has also introduced a new personal savings allowance for basic rate and higher rate tax-payers. With effect from 6th April 2016, basic rate tax-payers will be entitled to receive £ 1,000 of savings income tax-free while higher rate tax-payers will have an allowance of £ 500. Additional rate tax-payers will not receive an allowance and will therefore be unaffected by this change.

Savings income is interest from banks, building societies and National Savings. It also includes interest from authorised unit trusts and income from government stocks.

As a result of the new allowance, the way banks and building societies pay interest will also change.

Currently the majority of interest is paid net unless an individual has specified otherwise. As of 6th April 2016, all bank and building society interest will be paid gross and any interest exceeding the allowances will be taxed via the individual’s PAYE code (resulting in a deduction in their personal allowance) or collected through self-assessment.

Interest earned on savings held in an ISA will not be affected by the changes and remains exempt from income tax.