Finance Act 2016

Rate structure U.K.

4 Savings allowance, and savings nil rate etc U.K.

(1) ITA 2007 is amended in accordance with subsections (2) to (12).

(2) In section 6(3)(a) (other rates: savings), after “starting rate for savings” insert “ and savings nil rate ”.

(3) In section 7 (starting rate for savings)—

(a) the existing text becomes subsection (1),

(b) after that subsection insert—

“(2) The savings nil rate is 0%.”, and

(c) in the heading, after “starting rate for savings” insert “ and savings nil rate ”.

(4) In section 10(4) (provisions displacing charge at basic, higher and additional rates), before the entry relating to section 13 insert— “ section 12A (savings income charged at the savings nil rate), ”.

(5) After section 12 insert—

“12A Savings income charged at the savings nil rate

(1) This section applies in relation to an individual if—

(a) the amount of the individual's Step 3 income is greater than £L, where £L is the amount of the starting rate limit for savings, and

(b) when the individual's Step 3 income is split into two parts—

(i) one (“the individual's income up to the starting rate for savings”) consisting of the lowest £L of the individual's Step 3 income, and

(ii) the other (“the individual's income above the starting rate limit for savings”) consisting of the rest of the individual's Step 3 income,

some or all of the individual's income above the starting rate limit for savings consists of savings income (whether or not some or all of the individual's income up to the starting rate limit for savings consists of savings income).

(2) In this section—

• £A is the amount of the individual's savings allowance (see section 12B),

• “the excess” is so much of the individual's income above the starting rate limit for savings as consists of savings income, and

• £X is the amount of the excess.

(3) If £X is less than or equal to £A, income tax is charged at the savings nil rate (rather than the basic, higher or additional rate) on the excess.

(4) If £X is more than £A, income tax is charged at the savings nil rate (rather than the basic, higher or additional rate) on the lowest £A of the excess.

(5) Subsections (3) and (4) are subject to any provisions of the Income Tax Acts (apart from section 10) which provide for income to be charged at different rates of income tax in some circumstances.

(6) Section 16 has effect for determining the extent to which the individual's income above the starting rate limit for savings consists of savings income.

(7) For the purposes of this section, an individual's “Step 3 income” is the individual's net income less allowances deducted at Step 3 of the calculation in section 23.

12B Individual's entitlement to a savings allowance

(1) Subsections (2) to (4) determine the amount of an individual's savings allowance for a tax year.

(2) If any of the individual's income for the year is additional-rate income, the individual's savings allowance for the year is nil.

(3) If—

(a) any of the individual's income for the year is higher-rate income, and

(b) none of the individual's income for the year is additional-rate income,

the individual's savings allowance for the year is £500.

(4) If none of the individual's income for the year is higher-rate income, the individual's savings allowance for the year is £1,000.

(5) The Treasury may by regulations substitute a different amount for the amount for the time being specified in subsection (2), (3) or (4); and regulations under this subsection that have effect for a tax year may be made at any time before the end of that tax year.

(6) If regulations under subsection (5) reduce any amount, the regulations may not be made unless a draft of the instrument containing them (whether alone or together with regulations under subsection (5) which increase any amount) has been laid before, and approved by a resolution of, the House of Commons.

(7) Section 1014(4) (negative procedure) does not apply to regulations under subsection (5) which increase any amount if—

(a) the instrument containing them also contains regulations under subsection (5) which reduce any amount, and

(b) a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.

(8) For the purposes of this section—

(a) each of the following is “additional-rate income”—

(i) income on which income tax is charged at the additional rate or dividend additional rate,

(ii) income on which income tax would be charged at the additional rate but for section 12A (income charged at savings nil rate),

(iii) income on which income tax would be charged at the dividend additional rate but for section 13A (income charged at dividend nil rate), and

(iv) income of an individual who is a Scottish taxpayer or Welsh taxpayer which would, if the individual were not a Scottish taxpayer or Welsh taxpayer (as the case may be), be income on which income tax is charged at the additional rate, and

(b) each of the following is “higher-rate income”—

(i) income on which income tax is charged at the higher rate or dividend upper rate,

(ii) income on which income tax would be charged at the higher rate but for section 12A (income charged at savings nil rate),

(iii) income on which income tax would be charged at the dividend upper rate but for section 13A (income charged at dividend nil rate), and

(iv) income of an individual who is a Scottish taxpayer or Welsh taxpayer which would, if the individual were not a Scottish taxpayer or Welsh taxpayer (as the case may be), be income on which income tax is charged at the higher rate.”

(6) In section 16(1) (purposes of rules about highest part of income), before the “and” at the end of paragraph (a) insert—

“(aa) the extent to which a person's income above the starting rate limit for savings consists of savings income,”.

(7) In section 17 (repayment where tax paid at basic rate instead of starting rate for savings)—

(a) after subsection (1) insert—

“(1A) This section also applies if income tax at a rate greater than the savings nil rate has been paid on income on which income tax is chargeable at the savings nil rate.”, and

(b) in the heading—

(i) for “basic” substitute “ greater ”, and

(ii) after “savings” insert “ or savings nil rate ”.

(8) In sections 55B(2)(b) and 55C(1)(c) (individual liable to tax only at certain rates), after “dividend ordinary rate” insert “ , the savings nil rate ”.

(9) In section 745(1) (transfer of assets abroad: same rate of tax not to be charged twice), after “the starting rate for savings” insert “ when that rate is more than 0%, ”.

(10) In section 828B(5) (individual liable to tax only at certain rates), after “basic rate” insert “ , the savings nil rate ”.

(11) In section 989 (definitions for the purposes of the Income Tax Acts)—

(a) at the appropriate places insert—

““savings allowance” has the meaning given by section 12B,”, and

““savings nil rate” means the rate of income tax specified in section 7(2),”, and

(b) in the entry for “starting rate of savings”, for “has the meaning given by section 7” substitute “ means the rate of income tax specified in section 7(1) ”.

(12) In Schedule 4 (index of defined expressions), at the appropriate places insert—

“savings allowance

section 12B”, and

“savings nil rate

section 7”

(13) In section 669(3) of ITTOIA 2005 (preventing charge to both income and inheritance tax: meaning of “extra liability”), for paragraphs (a) and (b) substitute—

“(a) income charged at the additional rate or the higher rate were charged at the basic rate, and

(b) income charged at the dividend additional rate or the dividend upper rate were charged at the dividend ordinary rate.”

(14) In consequence of the amendment made by subsection (13)—

(a) in Schedule 1 to ITA 2007 omit paragraph 561,

(b) in Schedule 1 to FA 2008 omit paragraph 59, and

(c) in Schedule 2 to FA 2009 omit paragraph 21.

(15) In section 7(6) of TMA 1970 (cases where person not required to give notice of being chargeable to income tax), after “dividend ordinary rate” insert “ , the savings nil rate ”.

(16) In section 91(3)(c) of TMA 1970 (interest adjustments where reliefs given: when to ignore relief from higher rates on income paid subject to deduction of tax) after “basic rate” insert “ , the savings nil rate ”.

(17) Subject to subsection (18), the amendments made by this section have effect for the tax year 2016-17 and subsequent tax years.

(18) The amendments in section 669 of ITTOIA 2005, and the repeals made by subsection (14), have effect where the tax year mentioned in section 669(1)(b) of ITTOIA 2005 is the tax year 2016-17 or a later tax year.

(19) The Treasury may, by regulations made by statutory instrument, make such provision amending, repealing or revoking any provision made by or under the Taxes Acts as the Treasury considers appropriate in consequence of the amendments made by this section; and regulations under this subsection that have effect for the tax year 2016-17 may be made at any time before the end of that tax year.

(20) In subsection (19) “the Taxes Acts” means—

(a) the Tax Acts,

(b) TMA 1970, and

(c) TCGA 1992 and all other enactments relating to capital gains tax.

(21) A statutory instrument containing regulations under subsection (19) is subject to annulment in pursuance of a resolution of the House of Commons.

5 Rates of tax on dividend income, and abolition of dividend tax credits etc U.K.

(1) ITA 2007 is amended in accordance with subsections (2) to (8).

(2) In section 6(3)(b) (other rates: dividends), before “dividend ordinary rate,” insert “ dividend nil rate, ”.

(3) In section 8 (dividend ordinary, upper and additional rates)—

(a) in the heading, after “The” insert “ dividend nil rate, ”,

(b) before subsection (1) insert—

“(A1) The dividend nil rate is 0%.”,

(c) in subsection (1) (dividend ordinary rate), for “10%” substitute “ 7.5% ”, and

(d) in subsection (3) (dividend additional rate), for “37.5%” substitute “ 38.1% ”.

(4) In section 9(2) (dividend trust rate), for “37.5%” substitute “ 38.1% ”.

(5) After section 13 insert—

“13A Income charged at the dividend nil rate

(1) Subsection (2) applies if, ignoring this section, at least some of an individual's income would be charged to income tax at the dividend ordinary rate, the dividend upper rate or the dividend additional rate.

(2) Income tax is charged at the dividend nil rate (rather than the dividend ordinary rate, dividend upper rate or dividend additional rate) on one or more amounts of the individual's income as follows—

• Step 1 Identify the amount (“D”) of the individual's income which would, ignoring this section, be charged at the dividend ordinary rate.Rule 1A: If D is more than £5,000, the first £5,000 of D is charged at the dividend nil rate (rather than the dividend ordinary rate), and is the only amount charged at the dividend nil rate.Rule 1B: If D is equal to £5,000, D is charged at the dividend nil rate (rather than the dividend ordinary rate), and is the only amount charged at the dividend nil rate.Rule 1C: If D is less than £5,000 but more than nil, D is charged at the dividend nil rate (rather than the dividend ordinary rate).

• Step 2 If D is less than £5,000, identify the amount (“U”) of the individual's income which would, ignoring this section, be charged at the dividend upper rate.Rule 2A: If the total of D and U is more than £5,000—

  (a)

  the first £M of U is charged at the dividend nil rate (rather than the dividend upper rate), where £M is the difference between £5,000 and D, and

  (b)

  the amounts charged under this Rule and Rule 1C are the only amounts charged at the dividend nil rate.

  Rule 2B: If the total of D and U is equal to £5,000, U is charged at the dividend nil rate (rather than the dividend upper rate), and the amounts charged under this Rule and Rule 1C are the only amounts charged at the dividend nil rate.Rule 2C: If the total of D and U is less than £5,000 but more than nil, U is charged at the dividend nil rate (rather than the dividend upper rate).

• Step 3 If the total of D and U is less than £5,000, identify the amount (“A”) of the individual's income which would, ignoring this section, be charged at the dividend additional rate.Rule 3A: If the total of D, U and A is more than £5,000, the first £X of A is charged at the dividend nil rate (rather than the dividend additional rate), where £X is the difference between—

  • £5,000, and

  • the total of D and U,

  and the amounts charged under this Rule, and Rules 1C and 2C, are the amounts charged at the dividend nil rate.Rule 3B: If the total of D, U and A is less than or equal to £5,000, A is charged at the dividend nil rate (rather than the dividend additional rate), and the amounts charged under this Rule, and Rules 1C and 2C, are the amounts charged at the dividend nil rate.”

(6) In section 55B(2) (transferable allowance: conditions for entitlement to tax reduction)—

(a) in paragraph (b) (individual liable to tax only at certain rates), after “the basic rate,” insert “ the dividend nil rate, ”, and

(b) after paragraph (b) insert—

“(ba) if for the tax year the individual is liable to tax at the dividend nil rate, the individual would for that year neither be liable to tax at the dividend upper rate, nor be liable to tax at the dividend additional rate, if section 13A (dividend nil rate) were omitted,”.

(7) In section 55C(1) (transferable allowance: conditions for entitlement to elect for reduced personal allowance)—

(a) in paragraph (c) (individual would be liable to tax only at certain rates), after “the basic rate,” insert “ the dividend nil rate, ”, and

(b) before the “and” at the end of paragraph (c) insert—

“(ca) where on that assumption the individual would for the tax year be liable to tax at the dividend nil rate, the individual on that assumption would for that year neither be liable to tax at the dividend upper rate, nor be liable to tax at the dividend additional rate, if section 13A (dividend nil rate) were omitted,”.

(8) In section 989 (definitions for the purposes of the Income Tax Acts), after the entry for “dividend income” insert—

““dividend nil rate” means the rate of income tax specified in section 8(A1),”.

(9) In section 7 of TMA 1970 (duty to notify HMRC of liability to tax)—

(a) in subsection (6) (exception for net payments etc)—

(i) after paragraph (a) insert “ or ”,

(ii) at the end of paragraph (b), for “; or” substitute a comma,

(iii) omit paragraph (c), and

(iv) in the words after paragraph (c), after “the basic rate” insert “ , the dividend nil rate ”, and

(b) after subsection (6) insert—

“(6A) A source of income falls within this subsection in relation to any person and any year of assessment if for that year—

(a) all income from the source is dividend income (see section 19 of ITA 2007), and

(b) the person—

(i) is UK-resident,

(ii) is not liable to tax at the dividend ordinary rate,

(iii) is not liable to tax at the dividend upper rate,

(iv) is not liable to tax at the dividend additional rate, and

(v) is not charged to tax under section 832 of ITTOIA 2005 (relevant foreign income charged on remittance basis) on any dividend income.”

(10) The amendments made by the preceding provisions of this section have effect for the tax year 2016-17 and subsequent tax years.

(11) Schedule 1 contains provision for, and connected with, the abolition of dividend tax credits etc.

6 Structure of income tax rates U.K.

(1) ITA 2007 is amended in accordance with subsections (2) to (22).

(2) Before section 10 insert—

“9A Overview of sections 10 to 15

The general effect of sections 10 to 15 is outlined in the following table—

Type of taxpayer	Rates payable on savings income	Rates payable on most dividend income	Rates payable on other income
UK resident individual who is neither a Scottish taxpayer nor a Welsh taxpayer	Savings rates	Dividend rates	Main rates
Scottish taxpayer	Savings rates	Dividend rates	Scottish rates
Welsh taxpayer	Savings rates	Dividend rates	Main rates while section 11B is not in force; Welsh rates if that section is in force
Non-UK resident individual	Savings rates	Dividend rates	Default rates
Non-individual, except that some trustees in some circumstances are subject instead to the trust rate or the dividend trust rate	Default basic rate	Dividend ordinary rate	Default basic rate

Note: the table does not address the effect of some exceptions referred to in sections 10 to 15.”

(3) Before section 7 insert—

“6C The default basic, higher and additional rates

The default basic rate, default higher rate and default additional rate for a tax year are the rates determined as such by Parliament for the tax year.”

(4) After section 7 insert—

“7A The savings basic, higher and additional rates

The savings basic rate, savings higher rate and savings additional rate for a tax year are the rates determined as such by Parliament for the tax year.”

(5) In section 6(3) (other rates)—

(a) before paragraph (a) insert—

“(zc) section 6C (default basic, higher and additional rates),”, and

(b) after paragraph (a) insert—

“(aa) section 7A (savings basic, higher and additional rates),”.

(6) In section 10(2) (income charged at basic rate) omit the words after “at the basic rate”.

(7) In section 10(4) (provisions displacing charge at basic, higher and additional rates), before the entry (inserted by this Act) relating to section 12A insert—

“section 11C (income charged at the default basic, higher and additional rates: non-UK resident individuals),

section 11D (savings income charged at the savings basic, higher and additional rates: individuals),

section 12 (savings income charged at the starting rate for savings),”.

(8) In section 11 (income charged at the basic rate: other persons)—

(a) in the heading, for “basic rate: other persons” substitute “ default basic rate: non-individuals ”, and

(b) in subsection (1), before “basic” insert “ default ”.

(9) After section 11B insert—

“11C Income charged at the default basic, higher and additional rates: non-UK resident individuals

(1) Income tax on a non-UK resident individual's income up to the basic rate limit is charged at the default basic rate.

(2) Income tax is charged at the default higher rate on a non-UK resident individual's income above the basic rate limit and up to the higher rate limit.

(3) Income tax is charged at the default additional rate on a non-UK resident individual's income above the higher rate limit.

(4) Subsections (1) to (3) are subject to—

• section 11D (savings income charged at the savings basic, higher and additional rates),

• section 12 (savings income charged at the starting rate for savings),

• section 12A (savings income charged at the savings nil rate),

• section 13 (income charged at the dividend ordinary, upper and additional rates: individuals), and

• any other provisions of the Income Tax Acts (apart from section 10) which provide for income to be charged at different rates of income tax in some circumstances.

11D Income charged at the savings basic, higher and additional rates

(1) Income tax is charged at the savings basic rate on an individual's income which—

(a) is saving income, and

(b) would otherwise be charged at the basic rate or the default basic rate.

(2) Income tax is charged at the savings higher rate on an individual's income which—

(a) is savings income, and

(b) would otherwise be charged at the higher rate or the default higher rate.

(3) Income tax is charged at the savings additional rate on an individual's income which—

(a) is savings income, and

(b) would otherwise be charged at the additional rate or the default additional rate.

(4) Subsections (1) to (3)—

(a) have effect after sections 12 and 12A have been applied (so that any reference in subsections (1) to (3) to income which would otherwise be charged at a particular rate does not include income charged at the starting rate for savings or at the savings nil rate), and

(b) are subject to any other provisions of the Income Tax Acts (apart from sections 10 and 11C) which provide for income to be charged at different rates of income tax in some circumstances.

(5) Section 16 has effect for determining the extent to which an individual's savings income above the starting rate limit for savings would otherwise be charged at the basic, higher or additional rate or the default basic, default higher or default additional rate.

(6) In relation to an individual who is a Scottish taxpayer, references in this section to income which would otherwise be charged at a particular rate are to be read as references to income that would, if the individual were not a Scottish taxpayer (but were UK resident), be charged at that rate (and subsection (5) is to be read accordingly).”

(10) In section 12(1) (income charged at the starting rate for savings)—

(a) omit “(rather than the basic rate)”, and

(b) for “as is savings income” substitute “as—

(a) is savings income, and

(b) would otherwise be charged at the basic rate or the default basic rate”.

(11) In section 12A (inserted by this Act)—

(a) in each of subsections (3) and (4), after “rather than the basic, higher or additional rate” insert “ or the default basic, default higher or default additional rate ”, and

(b) in subsection (5), for “section 10” substitute “ sections 10 and 11C ”.

(12) In section 12B (inserted by this Act), in subsection (8) (income charged at savings nil-rate: meaning of “additional-rate income” and “higher-rate income”)—

(a) in paragraph (a)(i), after “at the additional rate” insert “ , default additional rate ”,

(b) in paragraph (a)(ii), after “additional rate” insert “ , or default additional rate, ”,

(c) in paragraph (a)(iv), after “additional rate” insert “ or default additional rate ”,

(d) in paragraph (b)(i), after “at the higher rate” insert “ , default higher rate ”,

(e) in paragraph (b)(ii), after “higher rate” insert “ , or default higher rate, ”, and

(f) in paragraph (b)(iv), after “higher rate” insert “ or default higher rate ”.

(13) In section 16(1) (purposes of rules about highest part of income), before the “and” at the end of the paragraph (aa) (inserted by this Act) insert—

“(ab) the rate at which income tax would be charged on a person's savings income above the starting rate limit for savings apart from sections 11D and 12A,”.

(14) In section 17(1) (repayment where tax paid at basic rate instead of starting rate for savings), for “at the basic rate” substitute “ at a rate greater than the starting rate for savings ”.

(15) In section 55B (entitlement to transferable tax allowances for married couples and civil partners)—

(a) in subsection (2)(b) as amended by section 5 of this Act, after “other than the basic rate,” insert “ the default basic rate, the savings basic rate, ”, and

(b) in subsection (3), after “is the basic rate” insert “ or default basic rate ”.

(16) In section 55C(1)(c) (election to reduce personal allowance conditional on not becoming subject to higher rates) as amended by section 5 of this Act, after “other than the basic rate,” insert “ the default basic rate, the savings basic rate, ”.

F1 (17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1 (18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F1 (19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(20) In section 828B(5) (exemption for non-domiciled UK residents conditional on not being subject to higher rates) as amended by section 4 of this Act, after “other than the basic rate” insert “ , the savings basic rate ”.

(21) In section 989 (definitions for the purposes of the Income Tax Acts), at the appropriate places insert—

““default additional rate” means the rate of income tax of that name determined pursuant to section 6C,

“default basic rate” means the rate of income tax of that name determined pursuant to section 6C,

“default higher rate” means the rate of income tax of that name determined pursuant to section 6C,”and—

““savings additional rate” means the rate of income tax of that name determined pursuant to section 7A,”and—

““savings basic rate” means the rate of income tax of that name determined pursuant to section 7A,

“savings higher rate” means the rate of income tax of that name determined pursuant to section 7A,”.

(22) In Schedule 4 (index of defined expressions), at the appropriate places insert—

“default additional rate

section 6C (as applied by section 989)”

“default basic rate

section 6C (as applied by section 989)”

“default higher rate

section 6C (as applied by section 989)”

“savings additional rate

section 7A (as applied by section 989)”

“savings basic rate

section 7A (as applied by section 989)”

“savings higher rate

section 7A (as applied by section 989)”

(23) In sections 4(4) and (5) and 4BA(1) of TCGA 1992 (rate of capital gains tax depends on individual's liability to higher rates of income tax), after “at the higher rate” insert “ , the default higher rate, the savings higher rate ”.

(24) Subject to any provision made by virtue of subsection (25)(b), the amendments made by this section come into force on the day appointed by the Treasury under section 13(14) of the Scotland Act 2016 and have effect—

(a) for the tax year appointed by the Treasury under section 13(15) of the Scotland Act 2016, and

(b) for subsequent tax years.

(25) The Treasury may by regulations make—

(a) such consequential provision as they consider appropriate in connection with any preceding provision of this section;

(b) such transitional or saving provision as they consider appropriate in connection with the coming into force of any provision of the preceding subsections of this section.

(26) Regulations under this section may amend, repeal or revoke an enactment, whenever passed or made (including this Act).

(27) Regulations under this section must be made by statutory instrument.

(28) A statutory instrument containing regulations under this section which includes provision amending or repealing a provision of an Act may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.

(29) Any other statutory instrument containing regulations under this section, if made without a draft having been approved by a resolution of the House of Commons, is subject to annulment in pursuance of a resolution of the House of Commons.

(30) In subsection (26) “enactment” includes an enactment contained in subordinate legislation (within the meaning of the Interpretation Act 1978).

Subordinate Legislation Made

P1 S. 6(24): 30.11.2016 appointed for the purposes of the amendments made by this section and those amendments have effect in relation to tax year 2017-18 and subsequent tax years by virtue of S.I. 2016/1161, regs. 2, 3

Textual Amendments

F1 S. 6(17)-(19) omitted (6.4.2018) by virtue of The Scottish Rates of Income Tax (Consequential Amendments) Order 2018 (S.I. 2018/459), arts. 1(2), 7(2)