Tax Free Savings allowance

Tax Free Savings allowance

This new allowance is being introduced from 6 April 2016 and allows the first £1000 of a basic tax payer’s savings income and £500 of a higher rate taxpayer’s savings income to be tax free.

If you have:

  1. a profitable company and you typically take a small salary and mostly dividends, and
  2. have loaned money to your company

then there may be a way to combine this new relief with an existing relief.

The existing relief applies a 0% rate to the first £5,000 of savings income where an individual earns less than the personal allowance level plus £5,000 (total £15,600).  This might work as follows:

  • Draw a minimal salary.
  • Charge interest of up to £5,000 on your loan account (assuming you can justify the interest charged).
  • Provided salary and interest are less than £15,600 this would all be received tax free.
  • If you can charge interest of £5,000 you can now add a further £500 using this new relief which will also be tax free.
  • Dividends can be paid without interfering with this model.

Back to Wilder Coe Budget 15 Summary

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