Taxes, personal allowances and limits - what you'll pay in 2016/17

Income taxes

The personal allowance, or the amount you can earn tax-free before you start paying income tax, will rise by £400 to £11,000. For the first time, pensioners won’t receive a higher personal allowance than other age groups.

You will pay basic rate tax (20%) on the first £32,000 of taxable income above your personal allowance. This means you can earn up to £43,000 before you start paying higher rate tax (40%).

If you earn £100,000 or more, your tax-free personal allowance falls by £1 for every £2 you earn over £100,000. So if you earn £121,200 or more, you won’t receive it at all.

The additional rate income tax (45%) is also charged on earnings over £150,000.

Rent-a-room tax allowance

Homeowners can get £7,500 tax-free rental income from lodgers.

If you’ve heard talk of new allowances for property income, or from selling things online, these are on the way but won’t arrive until April 2017.

New savings allowance

You might be able to reduce your tax bill further if you receive income from savings.

Basic rate taxpayers can now earn £1,000 from savings before they have to start paying income tax on savings income.

Higher rate taxpayers will only start paying tax on savings income over £500.

There is no savings allowance for additional rate taxpayers. See Tax-free savings are changing for more on how the new personal savings allowance works.

With savings rates so poor at present, the government forecasts that 95% of people will not pay tax on savings income after these changes are introduced.

With the highest paying savings account, for example, - a five-year bond from Union Bank of India paying  3% interest - lower rate taxpayer would need more than £33,300 before they start paying tax under the new rules.

Higher rate taxpayers would need around £17,000 before they start paying tax on savings income.

Looking for a new savings account? Check our weekly roundup of the best deals. It’s worth checking current accounts too, as some, such as TSB, pay 5% interest on in-credit cash. See our weekly roundup of the top current accounts.

Personal allowances can be stacked, so if you only receive an income from savings, you can earn £12,000 a year (that’s the £11,000 personal allowance, plus the £1,000 savings income) before you start paying tax.

National Insurance – employees

While most people won’t pay tax on the first £11,000 they earn, employees will need to pay National Insurance if they earn more than £5,824 a year.

Workers will pay 12% National Insurance on earnings up to £43,000, and 2% on earnings over that.

National insurance – self-employed workers

Self-employed workers who make more than £5,965 a year need to pay Class 2 National Insurance contributions. These are a flat rate of £2.80 per week (£146 a year), regardless of how much you earn.

Class 2 contributions will however be scrapped from April 2018. See Budget 2016: Class 2 national insurance contributions to be scrapped for self-employed workers.

Additionally, self-employed workers who make more than £8,060 a year, will pay Class 4 contributions, of 9% of profits up to £43,000 per year, plus 2% of any earnings above that.

Dividend taxes

Taxes on dividends have changed. The first £5,000 income from dividends will now be paid tax-free. Again, this can be stacked with your personal allowance, so if you don’t have other income you’ll be able to earn £16,000 tax-free.

After that, basic rate taxpayers will pay 7.5% tax on dividends and higher rate taxpayers will pay 32.5%. Additional rate taxpayers will be charged 38.1% tax on dividend income.

These changes don’t affect any shares you hold in an Isa or a pension. It’s thought those most likely to be affected  are small business owners who pay themselves a share of their company’s profits in lieu of a salary.

Capital Gains Taxes

Capital Gains Taxes have been cut in most cases. Lower rate taxpayers will pay 10% (previously 18%) and higher and additional rate taxpayers will pay 20%, down from 28%.

The only exception is people selling second properties, including buy-to-let investments.

Capital gains on these investments will still be charged at 18% for basic rate taxpayers, or 28% for higher and additional rate taxpayers.

The annual allowance has not changed, so you can still make £11,100 before you start paying capital gains tax.


There have been no major changes to pension allowances this year, so most people will be allowed to put up to £40,000 into a pension before 5 April 2017.

For now, pensions contributions receive full income tax relief, meaning basic rate taxpayers  get £20 tax relief for every £80 they save. The system is even more generous for higher rate taxpayers, who get £40 for every £60 they save.

If you earn more than £150,000, you will not be able to save as much into a pension. The amount you can save falls by £1 for every £2 you earn over £150,000, up to £210,000.

If you earn more than that, you’ll be able to save £10,000 per year. See Higher earners face new pensions tax charge for more on this.


Adults can save £15,240 into an Isa this year, the same as 2015/16. People with Junior Isas can save £4,080, which is also unchanged.

Children with a Child Trust Fund can also save up to £4,080 in the current tax year, or if they’d prefer to, transfer their savings to a Junior Isa.

See our weekly updated top cash Isa rates.    

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Your Comments

Looks wrong to me. Personal Allowance, £11,000, 0% Savings £5,000, then £1,000 personal savings allowance, allows someone earning £11,000 to get £6,000 of savings interest tax free, and then £5,000 of dividends. Making £22,000 tax free.

Yes, you may also get up to £5,000 of savings interest tax-free. This is your starting rate for savings. But the more you earn from other income (for example your wages or pension), the less your starting rate for savings will be.

You’re not eligible for the starting rate for savings if your other income is £16,000 or more.